A fi rm that manufactures and sells ball bearings currently has excess capacity. The fi rm expects that it will exhaust its excess capacity in three years. At that time, it will spend $5 million,...

A fi rm that manufactures and sells ball bearings currently has excess capacity. The fi rm expects that it will exhaust its excess capacity in three years. At that time, it will spend $5 million, which represents the cost of equipment as well as the value of depreciation tax shields on that equipment, to build new capacity. Suppose that this fi rm can accept additional manufacturing work as a subcontractor for another company. By doing so, the fi rm will receive net cash infl ows of $250,000 immediately, and in each of the next two years. However, the fi rm will also have to spend $5 million two years earlier than originally planned to bring new capacity on line. Should the fi rm take on the subcontracting job? The discount rate is 12 percent. What is the minimum cash infl ow that the fi rm would require (per year) to accept this job?