A cloth manufacturing firm is deciding whether or not to invest in new machinery. The machinery costs $45,000 and is expected to increase cash flows in the first year by $25,000 and in the second year by $30,000. The firm’s current fixed costs are $9,000 and current marginal costs are $15. The firm currently charges $18 per unit. If the interest rate is 5% then what is the present value of the cash flows? Show your calculation clearly.
Incorporate the fluctuations of supply and demand into the costs incurred and decide way management calculates estimations for further product needs.