Assignment Problem: Magnum Electronics Company expects a demand of 20,000 units per year for a special-purpose component at the end of the next six years. Net return (profit) per unit is $4. To produce the component, Magnum must buy a machine costing $250,000 with a life of six years and a salvage value of $40,000 after six years. The company estimates that repair costs will be $20,000 per year during the beginning of Years 2 to 6.
If Magnum requires a return of investment of 18%, should it market the component?