Net present value, depreciation tax shield. The owner of Polyplast, Inc., Joshua Ronen, is trying to decide what to do with a capital of $500,000 at his disposal. Ronen is considering two options:...

Net present value, depreciation tax shield. The owner of Polyplast, Inc., Joshua Ronen, is trying to decide what to do with a capital of $500,000 at his disposal. Ronen is considering two options: invest the money in shares of another company or expand the capacity of his plastics plant by buying a new injection molding machine. With the first option, he expects to earn a return of 12% over the next 10 years. With the second option, he expects to make annual net cash inflow of $108,000. The tax rate is 30%, and the machine will not have any salvage value at the  end of its useful life of 10 years.

Required:

What should Ronen do? (Assume straight-line depreciation for tax purposes.)