You are considering the following capital investment. You can buy a shoelace manufacturing machine for 7 million dollars. The machine would be depreciated using straight-line depreciation over 7 years. Assume first that the revenue from shoelace sales would be 3.2 million dollars per year, and variable costs would be 2 million per year. Assuming your firm has a beta of 1.2 and is all equity financed, and that the expected return on the market is 8% that the risk-free rate is 1%, and your firm has a marginal tax rate of 21%, is this a good investment?

1.b) How much is the option to sell the machine after 5 years for 3 million dollars (and exit the business) worth to you

1,c) If you can sell shoelaces at $2 and have variable costs of $0.50, how many shoelaces do you need to sell to have an accounting breakeven?

1.d) How many do you need to sell to have positive EVA/NPV?