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The Factory is considering a three - year project to improve its production efficiency. Buying a new machine for $ 4 0 0 , 0

The Factory is considering a three-year project to improve its production efficiency. Buying a new machine for $400,000 is estimated to result in $200,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a pretax salvage value at the end of the project of $70,000. The MACRS rates are .2,.32,.192,.1152,.1152, and .0576 for Years 1 to 6, respectively. Ignore bonus depreciation. The press also requires an initial investment in inventory of $20,000, along with an additional $5,000 in inventory for each succeeding year of the project. The inventory will return to its original level when the project ends. The tax rate is 20 percent and its discount rate is 15 percent. Should the firm buy and install the machine? Why or why not?

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