Billingham Packaging is considering expanding its production capacity by purchasing a new machine, the XC-750. The cost

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Billingham Packaging is considering expanding its productioncapacity by purchasing a new machine, the XC-750. The cost of theXC-750 is $2.75 million. Unfortunately, installing this machinewill take several months and will partially disrupt production. Thefirm has just completed a $50,000 feasibility study to analyze thedecision to buy the XC-750, resulting in the following estimates:Marketing: Once the XC-750 is operating next year, the extracapacity is expected to generate $10 million per year in additionalsales, which will continue for the ten-year life of the machine.Operations: The disruption caused by the installation will decreasesales by $5 million this year. As with Billingham’s existingproducts, the cost of goods for the products produced by the XC-750is expected to be 70% of their sale price. The increased productionwill require additional inventory of $1 million, to be added inyear 0 and depleted in year 10. Human Resources: The expansion willrequire additional sales and administrative personnel at a cost of$2 million per year. Accounting: The XC-750 will be depreciated viathe straight-line method over the 10-year life of the machine. Thefirm expects Receivables to be 15% of revenues and payables to be10% of the cost of goods sold. Billingham’s marginal corporate taxrate is 35%.