Y5

ACME Inc. is a company that produces all kinds of instruments. Mdm. Chairwoman, the president of ACME Inc. is concerned about the production capacity for the company's best-selling explosive tennis balls and is looking into expanding the production capacity. Mdm. Chairwoman can purchase a new production equipment for $3,000,000, which will last 20 years, with an annual O&M cost of $600,000. Another option that Mdm. Chairwoman is considering is to custom order a production equipment, which will last for 20 years, with an annual O&M cost of $450,000. At the end of 20 years, there would be no salvage value for either equipment. ACME Inc. uses a marginal tax rate of 50% and a straight-line depreciation. If the after tax MARR is 20%, what is the maximum amount that should be spent on the custom order production equipment?