Reference no: EM132038462

Lyssa's Deli is considering a three-year project to purchase new equipment to improve their production efficiency. Six months ago, they asked for a report to tell them whether or not this improvement was necessary. The report was delivered a month ago and cost $25,000. The report suggests that the company should go ahead with the project subject to Lyssa's financial analysis. Buying a new equipment for $400,000 is estimated to result in $120,000 in annual pretax cost savings. The equipment falls in the MACRS five-year class and it will have a salvage value at the end of the project of $85,000. At time 0, the press will also require an additional investment in inventory of $9,000. Other current accounts will not be affected. The MACRS schedule is as follows:

Year    5-year class

1 20%

2 32%

3 19.2%

4 11.52%

5 11.52%

6 5.76%