Elrond’s Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $480,000 is estimated to result in $205,000 in annual pre-tax cost savings. The press falls in CCA Class 43, with a 30 percent rate, and it will have a salvage value of $55,000 at the end of the project. Elrond will have other assets left in that asset class when the project is completed. The press also requires an initial investment in spare parts inventory of $21,000, along with an additional $3,000 in inventory for each succeeding year of the project. If the shop’s tax rate is 34 percent and its discount rate is 15 percent, should Elrond buy and install the machine press?

Business
Elrond’s Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $480,000 is estimated to result in $205,000 in annual pre-tax cost savings. The press falls in CCA Class 43, with a 30 percent rate, and it will have a salvage value of $55,000 at the end of the project. Elrond will have other assets left in that asset class when the project is completed. The press also requires an initial investment in spare parts inventory of $21,000, along with an additional $3,000 in inventory for each succeeding year of the project. If the shop’s tax rate is 34 percent and its discount rate is 15 percent, should Elrond buy and install the machine press?