Madrier SA has a project that requires the purchase of new machinery that costs £50,000 and additional raw material inventory of £2,000

Madrier SA has a project that requires the purchase of new machinery that costs £50,000 and additional raw material inventory of £2,000. The project will generate revenues of £100,000 per year for five years. The cost of materials and labour needed to generate these revenues will total £60,000 per year and other cash expenses will be £10,000 per year. The machine is expected to sell for £1,000 at the end of its five-year life and will be depreciated on a straight-line basis over five years to zero whereas the additional inventory that was tied up will be released. The corporate tax rate is 34% and the opportunity cost of capital is 10%.

Should the company purchase the machinery? Explain why or why not.