ABC Corporation is interested in purchasing a machine which will cost $50,000, and it will depreciate it on the straight-line basis over a 5-year period. The machine is predicted to last for 7 years and then Milan will sell it for $5,000. The expected earnings before taxes from machine are $15,000 with a standard deviation of $5,000. The income tax rate of Milan is 35%, and it utilizes 10% as discount rate.
(a) Determine the minimum earnings before taxes that this machine must produce yearly to defend its purchase.
(b) Determine the probability that this machine will be gainful.