Liquid Drugs, Inc. (LDI) produces a variety of pharmaceuticals in large liquid batches. LDIs business model to date has been to sell the drugs in liquid form to other companies that convert the liquid drug into dosage form for sale to consumers. LDIs reputation for quality and service depends on its unsurpassed capability to handle liquids safely and with minimal waste. The companys marginal tax rate is 30% and its weighted average cost of capital is 13.86%. One of LDIs processes involves consuming $50,000 of precursor chemicals, direct labor (variable), and variable overhead resources (such as electricity for heating and cooling) to produce a batch of 2,000 gallons of pain reliever PR1. LDI currently packages PR1 into five-gallon plastic containers and ships them to Tablets Galore, a customer that buys about 20% of LDIs total output each year. The plastic containers cost $2.10 each and LDI pays $0.50 per container for shipping. Tablets Galore pays $34 per gallon for PR1. One of LDIs managers, Anna R., has acquired access (with no investment required) to a tablet-making and packaging line. Anna estimates that LDI could produce eight cases of tablets from each gallon of PR1 and sell each case to distributors for $13.50 per case. Variable processing cost for tablet production would be $11.00 per gallon of PR1, while packaging will cost $5.16 per case. LDI will then pay $1.68 to ship each case to the distributor.

A. Should Liquid Drugs process the PR1 into tablets? Assume 26,000 gallons of PR1 are involved each year (all processed into tablets or not) and the demand for PR1 and associated products will last for four years. Use the present value formula and comparison equation in the answer.