Expert Chips is a manufacturer of prototype chips based in Dublin, Ireland. Next year, in 2018, Expert Chips expects to deliver 605 prototype chips at an average price of $55,000. Expert Chips' marketing vice president forecasts growth of 45 prototype chips per year through 2024. That is, demand will be 605 in 2018 2018, 650 in 2019, 695 in 2020, and so on.

Modernize		Replace
Initial investment in 2018	$35,300,000		$66,300,000
Terminal disposal value in 2024	$6,400,000		$15,800,000
Useful life	7 years		7 years
Total annual cash operating cost per prototype chip	$37,500		$30,00

Expert Chips uses straight-line depreciation, assuming zero terminal disposal value. For simplicity, we assume no change in prices or costs in future years. The investment will be made at the beginning of 2018, and all transactions thereafter occur on the last day of the year. Expert Chips' required rate of return is 66%. There is no difference between the modernize and replace alternatives in terms of required working capital. Expert Chips has a special waiver on income taxes until 2024.