Topic 8: Capital Investment Analysis A manufacturer of designer rugs is currently evaluating an opportunity to update one of its production plants. This will involve installing new, efficient production equipment and a large solar power system. At present, the firm incurs $320,000 in energy costs p.a. These costs are currently expected to continue to grow by 5% p.a. if the firm does not take any action. The new solar system will supply all of the facility's energy requirements. Key details concerning the expansion are provided below: The new equipment and solar system will cost $2.8 million and will have a useful life of 10 years. The equipment and solar system will require major maintenance at the end of years 4 and 8. These maintenance activities are expected to cost $45,000 and $60,000, respectively. As a result of the upgrades, the firm's: Sales revenues are expected to grow by $900,000 in the first year after the upgrades. These sales are further expected to grow by 2% p.a. over the life of the project. On average, cost of sales is 20% of sales revenues. Labour costs are expected to decline by $120,000 in the first year after the upgrades. These savings are