Lloyd Brown got an idea from Susan Smith who is the COO ( Chief Operations Officer). Currently Basic Toys is buying plastic wheels for their Mickey Mouse car from China. In total they buy 400 000 wheels per year at a price of 1 each According to Susan the price per wheel will increase by 2% next year, 2% the following and 3% the years after. She has the idea to bring production inhouse early next year and the investment in machinery will be 175 000. The machine can be placed in a empty space in the factory that can be rented out for 25 000. Susan has made a very good estimate of the cost of producing the wheels inhouse and the current cost is 0,80 per wheel and subject to the same increase as buying the wheels from China. As we are in the middle of the autumn Lloyd needs to make a decision. He knows that the new machine would last for four years and have no value in the end of year 4. He assumes that all cash flows are paid in the end of each year. During the summer meeting with the board it was decided that the risk free rate is 2%. The risk premium is set at +3% for low risk, +8% for medium risk and +12% for high risk projects. Lloyd decides that this is a medium risk project. Is this a challenge worth to pursue