PROBLEM 11.3 Kay Bee company is thinking of buying an equipment for 4,00,000. The equipment is expected to produce each year 10,000 units, 15,000 units, 20,000 units and 8000 units of product X over its estimated life of four years. The price per unit is 30, which is expected to increase by 5 per cent per year after the first year. The cost of production per unit in first year is 20 and is likely to increase by 10 per cent each year. The general rate of inflation is 8 per cent. The market- determined cost of capital is 10 per cent. The company tax rate is 50 per cent. Assume that depreciation can be charged on the straight-line basis for computing taxes, Should the equipment be bought?