MINI CASE Shrieves Casting Company is considering adding a expected to have a salvage value of $25,000 after 4 new line to its product mix, and the capital bud geting analysis is being conducted by Sidney John son, a recently graduated MBA. The production line1,250 units per year for 4 years at an incremental cost would be set up in unused space in Shrieves' main of S100 per unit in the first year, excluding deprecia- plant. The machinery's invoice price would be ap tion. Each unit can be sold for $200 in the first year proximately $200,000, another $10,000 in shipping The sales price and cost are both expected to increase charges would be required, and it would cost an addi- by 3% per year due to inflation. Further, to handle tional $30,000 to install the equipment. The machin- the new line, the firm's net working capital would ery has an economic life of 4 years, and Shrieves has have to increase by an amount equal to 12% of sales obtained a special tax ruling that places the equip- revenues. The firm's tax rate is 40%, and its overall ment in the MACRS 3-year class. The machinery is weighted average cost of capital is 10%. years of use The new line would generate incremental sales of