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Morgan company is considering expanding its production capacity by purchasing a new machine, the AC250. The cost of the AC250 is $1 million. Unfortunately, installing this machine will take several months and will partially disrupt production. The firm has just completed a $45,000 feasibility study to analyze the decision to buy the AC250, resulting in the following estimates: Marketing: Once the AC250 is operating next year, the extra capacity is expected to generate $10 million per year in additional sales, which will continue for the 5-year life of the machine. Operations. The disruption caused by the installation will decrease sales by $5 million this year. Once the machine is operating next year, the cost of goods for the products produced by the AC250 is expected to be 50% of their sale price. Human Resources: The expansion will require additional sales and administrative personnel at a cost of $0.4 million per year. Accounting: The AC250 will be depreciated via the straight-line method over the 5-year life of the machine. The firm expects receivables from the new sales to be 20% of revenues and payables to be 10% of the cost of goods sold. The increased production will require additional inventory on hand of $1.2 million to be added in year O and depleted in year 5. Morgan company’s marginal corporate tax rate is 20%. The appropriate cost of capital for the expansion is 9.9%. Required Assume you are financial consultant of Morgan company. Draft a report to Alex (Financial controller), and answer the following questions: