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Juicetronics, a maker of juice box drinks, currently produces 200,000 batches of 100 juice boxes per year. Each juice box needs one straw and it

Juicetronics, a maker of juice box drinks, currently produces 200,000 batches of 100 juice boxes per year. Each juice box needs one straw and it buys the straws from another firm, Tetra Brik, for a price of $2 per batch of 100 straws. The plant manager believes it may be cheaper to make these straws than to buy them. Direct production costs are estimated to be just $1.50 per batch. The necessary machinery would cost $150,000. The machinery would be depreciated straight-line to a zero salvage value over 10 years. After ten years, the machine would be sold for $1,000. The plant manager estimates that the operation would require additional net working capital at time 0 of $30,000. This working capital will be recovered at the end of the project. The firm pays taxes at a rate of 34% and has a 15% cost of capital. Should Juicetronics make or buy the straws?

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