Big Sky Company Expects a Demand of 30 000 Units

Essay

Big Sky Company expects a demand of 30 000 units per year for a special purpose component for six years. Net return per unit is $4.10. To produce the component, the company must buy a machine costing $245 000 with a life of six years and a salvage value of $47 000 after six years. The company estimates that repair costs will be $18 000 per year during Years 2 to 6. If Big Sky company requires a return on investment of 15.5%, should it market the component?