Acquisition of Equipment Using Expected Values. A new product line is being considered by the Engram Company. Special equipment will be required for the manufacturing process. To handle the expected volume, Engram may need

to purchase multiple machines if the project is to be accepted. Data with respect to the production of this product are:

The new product line will increase out-of-pocket annual fixed costs (excluding depreciation) by \(\$ 140,000\). It is estimated that this increase can be expected regardless of the number of machines purchased. The variable cost of producing a unit has been estimated at \(\$ 6\), and the selling price has been estimated at \(\$ 10\). The company has the physical space to install up to five units of equipment. Each machine sells for \(\$ 300,000\) per unit, and the useful life is estimated at six years with no salvage value.
A survey has been made to estimate the potential demand for this product. Probabilities of the estimated demand are as follows:

\section*{Required:}
Using straight-line depreciation, a 40 percent tax rate, and a 16 percent discount rate, determine how many machines, if any, should be purchased.

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Number of Equipment Units 1 2345 Product Unit Capacity 60,000 120,000 160,000 200,000 240,000