Geller Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $420,000 is estimated to result in $165,000 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 $71,000. The press also requires an initial investment in spare parts inventory of $15,000, along with an additional $2,000 in inventory for each succeeding year of the project. The shops tax rate is 25 percent and the project's required return is 9 percent.

Depreciation Accelerated System (MAl and other details on depreciation are presented later in the chapter. Note that five-year depreciation actually carries over six years because th IRS assumes purchase is made in midyear