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Should massey buy and install the machine press

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Massey Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $450,000 is estimated to result in $170,000 in annual pre-tax cost savings.

The press falls in the MACRS five-year class and the applicable depreciation rates are 20%, 32%, 19%, 12%, 11%, and 6%. It will have a salvage value at the end of the project of $90,000. The press also requires an initial investment in spare parts inventory of $18,000.

Question 1: If the shop's tax rate is 35 percent and its discount rate is 14 percent, should Massey buy and install the machine press?

Reference no: EM132602123

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