Requires initial investment in spare parts inventory

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Massey Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $380,000 is estimated to result in $145,000 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 $64,000. The press also requires an initial investment in spare parts inventory of $11,000, along with an additional $1,600 in inventory for each succeeding year of the project. The shop’s tax rate is 30 percent and its discount rate is 8 percent. Refer to Table 6.8.

Reference no: EM131130622

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