A widget manufacturer currently produces $200,000$ units a year. It buys widget lids from an

outside supplier at a price of $$2$ a lid. The plant manager believes that it would be cheaper

to make these lids rather than buy them. Direct production costs are estimated to be only

$$1\mathrm{.}50$ a lid. The necessary machinery would cost $$150,000$ and would last $10$ years. This

investment could be written off for tax purposes using the seven$-$year tax depreciation

schedule. The plant manager estimates that the operation would require additional work

ing capital of $$30,000$ but argues that this sum can be ignored since it is recoverable at the

end of the $10$ years. If the company pays tax at a rate of $35\%$ and the opportunity cost of

capital is $15\%,$ would you support the plant manager$$s proposal? State clearly any addi

tional assumptions that you need to make.