Project to improve its production efficiency

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Massey Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $730,000 is estimated to result in $270,000 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 $70,000. The press alsorequires an initial investment in spare parts inventory of $20,000, along with anadditional $3,500 in inventory for each succeeding year of the project. If the shop’s taxrate is 35 percent and its discount rate is 8 percent, should Massey buy and install themachine press?

Reference no: EM131528749

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