Zeus and Zion want to invest further cash in their successful vending machine operation. They plan to introduce new vending machines with health foods at the total cost of $18,000. They estimate that set-up and delivery costs would be equal to an additional $2,000. According to their financial projections incremental sales would increase by $15,000 per annum in the first two years, and then begin to decline in subsequent years as the novelty of these machines wear off (year 3- $10,000; year 4- $8,000; year 5- $6,000). The increase in operating expenses is estimated to be 30% of the annual change in sales.

With this purchase, current assets will increase by $12,000 and liabilities will increase by $4,000. The economic life of new machines is five years and no salvage value is expected at the end of the period. They expect that changes in working capital will be reversed at the end of year 5 (i.e. they will recoup 100 percent of their investment in current assets and repay 100 percent of their credit from suppliers).

Assume that the marginal tax rate is 20% and the discount rate is 15%. Amortization at 20% per year under the straight-line method (i.e., do not apply the half-year convention rule). Would you recommend that Zeus and Zion purchase additional vending machine?