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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?

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jeff jeffy answered 2 years ago
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