Question

Geary Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $892,800 is estimated to result in $297,600 in annual pretax cost savings. The press falls in the MACRS five-year class (MACRS Table), and it will have a salvage value at the end of the project of $130,200. The press also requires an initial investment in spare parts inventory of $37,200, along with an additional $5,580 in inventory for each succeeding year of the project.

Answer 1

The subject question requires knowledge of capital budgeting to determine if purchasing a new machine press is a financially feasible project for improving production efficiency at Geary Machine Shop.

Step-by-step explanation:

The question pertains to a capital budgeting decision by Geary Machine Shop, which is evaluating the purchase of a new machine press within the context of production efficiency improvement. The details involve costs such as the purchase price, yearly cost savings, depreciation (MACRS five-year class), salvage value, initial and recurring spare parts inventory investments.

This scenario requires an understanding of financial accounting, cost management, and investment appraisal methods such as Net Present Value (NPV) or Internal Rate of Return (IRR) to determine the project's feasibility. Additionally, the reference information indicates an underlying consideration of how the choice between labor and machines influences total production costs, and how external factors like union negotiations and energy efficiency play a role in these capital investment decisions.