4. 13.

Option to wait [LO 24.5] Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $275 000 per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10 years from today. The machine is currently priced at $1.8 million. The cost of the machine will decline by $140 000 per year until it reaches $1.1 million, where it will remain. If your required return is 8 per cent, should you purchase the machine? If so, when should you purchase it?