Kwame has told you that he is facing an investment decision that involves purchasing a weaving machine that the engineers have told him would increase efficiency and productivity. If he decides to purchase the Weaver Pro, he can trade in the current Weaver I for $150,000. The data collected about the Weaver Pro follows.

Price $1,000,000

Productive Life 7 years

Pretax cash flows:

Year 1 $ 250,000

Year 2 350,000

Year 3 500,000

Year 4 800,000

Year 5 800,000

Year 6 800,000

Year 7 750,000

Salvage value at the end of year 7, $100,000.

The companys average tax rate is 15% and its average cost of capital is 10%.

Advise Kwame whether it would be a good decision to purchase the Weaver Pro with supporting arguments.