Shrek Casting Company is considering adding a new line to its product mix. The production line would be set up in unused space in Shrek's main plant. The machinery's invoice price would be approximately $210,000; another $15,000 in shipping charges would be required; and it would cost an additional $30,000 to install the equipment. The machinery has an economic life of 4 years, and would be a class 8 with a 20% CCA rate. The machinery is expected to have a salvage value of $15,000 after 4 years of use.

The new line would generate incremental sales of 1,300 units per year for four years at an incremental cost of $125 per unit in the first year, excluding depreciation. Each unit can l1 be sold for $225 in the first year. The sales price and cost are expected to increase by 3% per year due to inflation. Further, to handle the new line, the firm's net operating working 12 capital would have to increase by an amount of $35,000. The firm's tax rate is 29%, and its overall weighted average cost of capital is 11 percent.