Four-year project to improve its production efficiency

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Reference no: EM131880157

Purple Haze Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $490,000 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 salvage value at the end of the project of $82,000. The press also requires an initial investment in spare parts inventory of $22,000, along with an additional $2,700 in inventory for each succeeding year of the project. The shop’s tax rate is 34 percent and its discount rate is 10 percent. Refer to Table 10.7 (MACRS table).

Reference no: EM131880157

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