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1. A widget manufacturer currently produces 200,000 units a year. It buys widget lids from an outside supplier at $2 a lid. The plant manager
1. A widget manufacturer currently produces 200,000 units a year. It buys widget lids from an outside supplier at $2 a lid. The plant manager believes it would be cheaper to make these lids rather than buy them. Direct production costs are estimated to be only $1.50 a lid. The necessary machinery would cost $150,000 and would last ten years. This investment could be depreciated on a straight-line basis over the useful life of the equipment. The plant manager estimates that the operation would require additional working capital of $30,000 that is recoverable at the end of the ten years. If the company pays tax at a rate of 21% and the cost of capital is 15%, would you support the plant manager's proposal? State any additional assumptions that you need to make
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