$$

Problem $2$

I

A company is considering acquiring a piece of machinery to help them expand into a new product line. The machinery would cost $$5,000,000$ today $($Year $0)$ and have a $10-$year life. It would be depreciated straight line over ten years, and assume there is no ending book value of the machinery. At the end of Year $10,$ the machinery would be sold for $$500,000.$ Revenues from the product line would be $$2,000,000$ in Year $1$ and increase by $3\%$ per year. Cash Expenses from the product line would be $$1,400,000$ in Year $1$ and increase by $2\%$ per year. The tax rate is $40\%,$ and the discount rate is $12\%.$