Annual Outlook: Unit sales per year = 10,000 units Price per unit initially = $22 Inflation of 3% per year (starting in year 2) applied to price per unit Costs per year will keep up with inflation, so calculate total costs as 75% of sales Tax Rate is 25% WACC is 20% NWC is fixed (either machine will require $25,000 up front to buy inventory)

Machine HS would have the following costs and depreciation schedule: Equipment Cost/Depreciation Basis is $41,000 Physical life of 3 years Considering the short physical life, you only consider straight-line depreciation so you can fully depreciate the asset.