In paper manufacturing, the bleaching process is responsible for producing pulp with sufficient brightness that meets paper production requirements. Poor pulp quality results in a direct impact to final paper brightness being produced on the paper machines. To achieve sufficient quality, the operators responsible for producing bleached pulp attempted to run above the target. This approach increases the use of bleaching chemicals. Additionally, brightness that is too high requires black dye to be added to bring the final paper brightness within specification ranges.

Assume the current average level of pulp brightness is at 90% whereas the target pulp brightness is 87%. Assume that cost associated with one unit of brightness increased is $800/day (one year is 365 days). Reducing the pulp brightness to the target level requires a significant quality improvement process that is estimated to cost an initial $200,000 and yearly cost of $50,000. Using this process, the company will be able to reduce the pulp brightness by one unit each year (i.e., after one year the brightness becomes 89, after two years it becomes 88, and after 3 years it becomes 87) to reach the target and maintain the target value after that. Please consider a 5-year investment horizon and suggest whether the company should proceed with this investment. Take the interest rate at 10%.