Question
In: Finance
Michael M. Shop is considering a 4-year project to improve its production efficiency. Buying a new...
Michael M. Shop is considering a 4-year project to improve its
production efficiency. Buying a new machine press for $265,000 is
estimated to result in $112,000 in annual pretax cost savings. The
press falls in the MACRS 5-year class, and it will have a salvage
value at the end of the project of $48,000. The press also requires
an initial investment in spare parts inventory of $12,000. The
inventory will return to its original level when the project ends.
The shop's tax rate is 30 percent and its discount rate is 8
percent. Should the firm buy and install the machine press? Why or
why not?
Solutions
jeff jeffy answered 2 years agoRelated Solutions
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its production efficiency. Buying a new machine press for $405,000
is estimated to result in $157,000 in annual pretax cost savings.
The press qualifies for 100 percent bonus depreciation, and it will
have a salvage value at the end of the project of $57,000. The
press also requires an initial investment in spare parts inventory
of $24,000, along with an additional $3,300 in inventory for each
succeeding year of the...
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