Problem 1:

You are evaluating an investment in a new machine that will produce our product faster. The up-front investment is $1,000,000 on January 1, 2022. The machine has a five year estimated useful life. Shown below are the expected incremental revenues by year associated with the additional units that the company could produce with the faster machine. The companys required return rate for an investment of this risk profile is 8%.

2022 2023

$400,000 10% $400,000 10%

$300,000 60% $300,000 60%

$200,000 30% $200,000 30%

2024 2025

$400,000 10% $400,000 10%

$300,000 60% $300,000 60%

$200,000 30% $200,000 30%

2026

$400,000 10%

$300,000 60%

$200,000 30%

What is the expected value of this investment at January 1, 2022?