Question: Cost-Cutting Proposals Chatman Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $530,000 is estimated to

Cost-Cutting Proposals Chatman Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $530,000 is estimated to result in $205,000 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 $90,000. The press also requires an initial investment in spare parts inventory of $20,000, along with an additional $3,000 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 Chat- man buy and install the machine press?

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