Must show all work

The Rustic Welt Company is proposing to replace its old welt-making machinery with more modern equipment. The new equipment costs $9 million (the existing equipment has zero salvage alue). The attraction of the new machinery is that it is expected to cut manufacturing costs from their current level of $8 a welt to $4. However, as the following table shows, there is some uncertainty both about future sales and about the performance of the new machinery: Pessimist ic Expected Optimistic Sales, millions of welts 0.4 0.5 0.7 Manufacturing cost with new machinery, dollars per welt Economic life of new machinery, years 10 13 Calculate the annual cost savings of the expected scenario under the three states of nature. Assume a discount rate of 12%. RW does not pay taxes