An airplane factory orders 500,000 windows (for plane) per year from a manufacturer, at a cost of $1 per window. The facotry owner wonders if it would make more sense for the factory to also produce the windows. Direct in-house production costs are estimated to be only $0.9 per window. The factory will purchase special units for a total investment of $100,000. Units will operate for 8 years, after which they will be sold for $10000.

This investment can be depreciated to zero for tax purposes using an 8-year straight-line depreciation schedule. The owner estimates that the operation would require additional working capital of $20,000 recoverable at the end of the 8 years. The cost of capital of the facotry is 10% and the tax rate is 35%. Should the facotry start producing the windows?