Question: Yasmin Machine Shop is considering a four year project to improve
Yasmin Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $475,000 is estimated to result in $183,000 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 $45,000. The press also requires an initial investment in spare parts inventory of $20,000, along with an additional $4,000 in inventory for each succeeding year of the project. If the shop’s tax rate is 35 percent and its discount rate is 9 percent, should the company buy and install the machine press?
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