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Erlond's Machine Shop is considering a four-year project to improve its production efficiency. Buying a new press machine for $433,333 is estimated to result in
Erlond's Machine Shop is considering a four-year project to improve its production efficiency. Buying a new press machine for $433,333 is estimated to result in $235,333 in annual pretax cost savings. The new machine will have a salvage value of $55,333 at the end of the project. This machine will replace an old machine that currently has a UCC value of 33,333 and can be sold at 5,333 in four years. Both machines fall in CCA class 43, with a 33% rate. The new press also requires an initial investtnent in spare parts inventory of $21,333, along with an additional $3,333 in inventory for each succeeding year of the project. If the shop's tax rate is 34% and its discount rate is 15%, should Elrond buy and install the new press machine and replace the old one?I
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