William J. Wilson Ceramic Products, Inc., leases plant facilities in which firebrick is manufactured. Because of rising demand, Wilson could increase sales by investing in new equipment to expand output. The selling price of $10 per brick will remain unchanged if output and sales increase. Based on engineering and cost estimates, the accounting department provides management with the following cost estimates based on an annual increased output of 100,000 bricks:

The sum-of-the-years'-digits method of depreciation will be used, and taxes are paid at a rate of 40 percent. Wilson's policy is not to invest capital in projects eaming less than a 20 percent rate of return. Should the proposed expansion be undertaken?

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Cost of new equipment having an expected life of five years $500,000 Equipment installation cost 20,000 Expected salvage value New operation's share of annual lease expense Annual increase in utility expenses Annual increase in labor costs Annual additional cost for raw materials 40,000 40,000 160,000 400,000