Your company is considering investing in a new machine. The cost of the machine is $100,000 and the machine is to be depreciated over five years to a residual value of $0.

The new machine will produce 3,000 units, which at $20 each, increases sales by$60,000 per year.

The cost per unit is $10 each.At the end of two years, production will cease and you expect to be able to sell the machine for $60,000.

It is estimated that the firm needs to hold net working capital equal to 5% of total sales.

The firm is in the 30% tax bracket and the opportunity cost of capital is 7%.

i. Calculate the annual Free Cash Flows for the new machine.

ii. Should you invest in the new machine? Briefly explain.

PLEASE SHOW ALL WORKINGS AND STEPS

THANK YOU