Pressco Case Study Essay

1399 Words Jan 26th, 2015 6 Pages
In reviewing the proposal presented by Pressco, Inc. to provide new mechanical drying equipment at a cost of $2.9 million I have considered the cash flow implications of the purchase in terms of present value of the investment and estimated resulting savings, as well as possible alternatives to purchase, and the current political climate as it affects the business issues of taxation and energy policy.
Following this review, it is my recommendation that we enter into a contract for the purchase of the equipment in question before the end of the year for the following reasons. Currently, our tax rate is not particularly favorable. We have experienced some small reductions in the late 1970’s, however the introduction of Supply-Side economics
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As such, it is important to consider as many likely and reasonable options as possible when evaluating the effects of taxes on capital purchases.
With the election of President Regan, the previously more fringe notion of Supply-Side Economics has begun to be implemented, starting first with the Economic Recovery Tax Act of 1981, which in addition to other business incentives, accelerated depreciation for capital expenditures to 5 years. This provision was repealed the following year as part of the Tax Equity and Fiscal Responsibility Act of 1982. We saw the back & forth over reducing tax rates and providing spending incentives to businesses again with the failed Tax Reform Act of 1983 which ultimately was rolled into the Tax Reform Act of 1984.
It has become clear that the one thing we do know about the future situation of business tax is uncertain. Because of the strong bias of the current Presidential administration towards lowering tax rates, I believe that it is likely we will experience a certain degree of relief in that area. However, it is more important than ever at this time that we not depend to heavily on benefits derived from more favorable tax treatment. As such, it is in our interest to also determine if a given project will produce a positive financial result, even in less favorable taxation scenarios.

Fuel Efficiency Considerations:
Of the $560,000/year savings Pressco,

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