The Paxton Homes Co. is a succ

The Paxton Homes Co. is a successful builder of moderate to high-priced houses. The firm is currently considering an expansion into light commercial construction in which it would build shopping centers and small office buildings. Management considers the idea a new venture because of the major differences between commercial and residential construction. Getting into the new line of business will require an investment of $12.5 million in equipment and $3 million in expenses. The equipment will be depreciated over five years. Part of the start-up money will come from the sale of some old trucks and cranes.

                 These have a total market value of $1.8 million and an NBV of $600 million. Selling the equipment will result in a depreciation reduction of $200 million per year for three years. Revenue from the commercial line is expected to be $6 million in the first year and to grow by $2 million in each succeeding year until it reaches $20 million.

            After that, growth is uncertain and may be anywhere from 0 to 6% per year. Costs and expenses, including incremental overhead, will be 110% of revenues in the first year, 85% in the next two years, and 70% thereafter. Economies of scale in

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