$1.$ Massey Machine Shop is considering a three$-$year project to improve its production efficiency.$$ Six months ago, it contracted with Dr$.$ Wright to provide a thorough study of whether there would be a need for this three$-$year efficiency project.$$ The report was delivered one month ago and its cost was $$45,000.$ The report suggested that the company should go ahead with the project subject to Massey$$s more detailed financial analysis.$$ Buying a new machine press for $$600,000$ will result in $$250,000$ in annual pretax cost savings.$$ The machine falls in the MACRS five$-$year class and it will have a salvage value at the end of the project of $$60,000.$ At time $0,$ the press will also require an additional investment in inventory of $$20,000$ and accounts payable will also increase by $$13000,$ every other current accounts remain the same.$$ Except for this one time increase of $$20000$ and $$13000,$ the inventory and accounts payable levels will not change during the life of the project.$$ If the company$$s tax rate is $20\%$ and its costing of funding is $10\%,$ should the company accept the project?$(30$ pts$).$

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The $5-$year MACRS schedule is as follows:

$$

Year

$5-$year Class

$1$

$20\%$

$2$

$32\%$

$3$

$19\mathrm{.}2\%$

$4$

$11\mathrm{.}52\%$

$5$

$11\mathrm{.}52\%$

$6$

$5\mathrm{.}76\%$