Vanderfeld Corporation is considering purchasing a new machine to be used to manufacture a new product, called Penton, which will sell for $25 a unit. Variable manufacturing cost is expected to be $12 for each unit of Penton manufactured, and variable marketing cost is expected to be $3 for each unit sold. The machine being considered can produce 12,000 units a year, all of which the Marketing Department believes can be sold for $25 a unit. The proposed machine will cost $500,000. Although the machine will probably last 10 years, management believes that the product's life cycle will be only 5 years. The salvage value of the new machine at the end of the product's 5-year life cycle is expected to be $100,000. Management does not believe the machine can be used to manufacture any of the company's other products.
Required:
Compute the pretax net cash inflow expected from the capital expenditure proposal for each year; and, ignoring the effect of income taxes, determine the excess of cash inflows from all sources over the cost of the machine.