Mini$-$case for Week $8$:

Rudy, a small business owner, is considering a capital asset purchase for his factory. With the new machine, the reliance on manual labour will be significantly lessened. The annual labour hours currently total $60,000$ and the machine will permit a $25\%$ drop. As the factory workers are unionized, labour tends to be a bit on the pricey side$-$ on average, each labor hour costs Rudy $$30.$

While the collective bargaining agreement only allows for a $15\%$ reduction in workforce over any six$-$month period, Rudy believes he can successfully transition some factory workers into sales, paying them the same salary before transitioning them to a commission$-$based compensation structure. There has been a mild need for more salespeople but Rudy figures the newly transitioned employees who don't enjoy it will quit quickly anyway$-$ especially if their commission paychecks are low.

Outside of labour costs, the machine will cost $$16,000$ a year to operate. Additionally, there will be annual maintenance totaling $$4,000.$ With regular maintenance, the machine will last five years before it is scrapped $($no salvage value$).$

Rudy has a few options when it comes to buying the machine. He can borrow $$500,000$ from the bank at a rate of $6\%$ and purchase the machine outright. Alternatively, he can sign a five$-$year lease, paying $$180,000$ a year for the machine. In either scenario, the machine would have the same operational benefits and costs.

Rudy is interested in a couple of financial analytical approaches. First, he wants to gain an idea about the cash payback period. Second, he wants some details on NPV analysis and how it differs from cash payback $($pros and cons would be useful$).$ Finally, he wants some insight on the ethical implications of his plan, along with other business $($non$-$financial$)$ considerations.

As a financial analyst, please provide your insights and recommendations in a four$-$to$-$five paragraph memo to Rudy.