Vyasa Publishing Company hires students from the local university to collate pages on various printing jobs. This collating is all done by hand, at a cost of $60,000 per year. A collating machine has just come onto the market that could be used in place of the student help. The machine would cost $170,000 and have a 15-year useful life. It would require an operator at an annual cost of $18,000 and have annual maintenance costs of $7,000. New roller pads would be needed on the machine in eight years at a total cost of $20,000. The salvage value of the machine in 15 years would be $40,000.

For tax purposes, the company computes CCA deductions at 30%. Management requires a 14% after-tax return on all equipment purchases. The company’s tax rate is 40%.

Required:

1. Determine the before-tax net annual cost savings that the new collating machine will provide.

2. Using the data from part (1) and other data from the exercise, compute the collating machine’s net present value. (Round all dollar amounts to the nearest whole dollar.) Would you recommend that the machine be purchased?