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New Investment Example:

A toy company is thinking about to expand its production line into stuff toys, in addition to its current plastic toys.

According to the firm, this expansion will not influence the cash flows of its current operations. The purchase price for the new machine is $10,000,000, and additional $2,000,000 is needed for the shipping and handling. The firm will use straight line for its depreciation, the depreciable life is set to be 5 years, and zero salvage value. The manufacturing department thinks the market value for the machine will be $3,000,000 after 5 years.

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