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?
MACRS Table- 5 years
Year MACRS Percentage
1 20%
2 32%
3 19.2%
4 11.52%
5 11.52%
6 5.76%