9.1 Remember, discount cash flows, not profits. Each tewgit machine costs $250,000 right away. Recognize that outlay, but forget accounting depreciation. Cash flows per machine are:

Each machine is forecast to generate $50,000 of cash flow in years 4 and 5. Thus it makes sense to keep operating for 5 years.

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Year: 0 1 2 3 4 5 Investment (outflow) -250,000 Sales Operating expenses 250,000 300,000 300,000 250,000 250,000 -200,000-200,000 -200,000-200,000-200,000 Cash flow -250,000 +50,000 +100,000 +100,000 +50,000 + 50,000