A company is considering investing in a machine that produces its major product, X. The

machine will cost KShs. 400,000. The machine is expected to produce 10,000 units of X each

year for the next five years. The current cost of producing the product is KShs. 14 per unit and

the unit sales price is KShs. 20. In future, the firm expects to increase its sales price by 10% p.a.

while production cost is expected to go up by 8% p.a.

The machine is to be depreciated on a straight-line basis and will have no salvage value. The

general inflation rate in the economy is expected to be 9%. Corporation rate of tax is 40%. The

firm's hurdle rate is 12%. Should the machine be bought