1. Robert Montoya, Inc. is planning a new wine offering and has to produce new production facilities.New machinery is estimated at $2,200,000 with shipping costs of $80,000 and installation of $120,000.New inventories of oak barrels would have to be added of $100,000.The machinery has an economic life of 4 years but a special tax ruling has allowed Robert Montoya to depreciate the equipment using a MACRS 3-year class life.The depreciation allowances are 0.33, 0.45, 0.15, and 0.07 in years 1 - 4, respectively.

Robert Montoya expects to sell 100,000 bottles per year for the next four years with a wholesale price of $40 per bottle and a operating cost of $32 per bottle.If the new wine is produced an existing Montoya wine will lose sales of $60,000 but also reduce production costs by $40,000.The federal-plus?state tax rate is 40% and the WACC is 10%.

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