Your firm is considering investing in a new piece of machinery to add a new production line.

The cost of the machine is $8,000,000. It will be depreciated over four years by the straight-line method down to a value of zero. You estimate that you can operate the machine for six years. At the end, the equipment will sell for $900,000 as scrap. Treat any capital gains or losses associated with the sale of the equipment at the firms marginal tax rate.

Your marketing staff estimates that new sales for the first year will be $5,200,000, and that the sales should then increase at about 4% per year into the future. The accounting department estimates that annual fixed costs on the sales will be $1,500,000, and variable costs will be 35% of sales.

You must maintain a level of $1,750,000 in net working capital for the life of the machine.

The firms marginal income tax rate is 20%. You must achieve a return of at least 8.50% on capital investments.

Should you invest in the machine? Yes or No