1. Grady Precision Measurement has forecasted the following sales and costs for a new GPS system: annual sales of 48,000 units at $18 a unit, production costs at 37% of sales price, annual fixed costs for production at $180,000, and straight-line depreciation expense of $240,000 per year. The company tax rate is 35%. What is the annual operating cash flow of the new GPS system?

2. Using the operating cash flow information from the previous problem, determine whether Grady Precision Measurement Tools should add the GPS system to its set of products. The initial investment is $1,440,000 for manufacturing equipment, which will be depreciated over six years (straight line) and will be sold at the end of five years for $380,000. The cost of capital is 10%, and the tax rate is still 35%.