Rooney Business is considering purchasing a packaging machine for \(\$ 40000\) that will have a residual value of \(\$ 400\) after 10 years. It would be depreciated using the straight-line method. The machine would reduce labour costs in despatch by \(\$ 16000\) per year. Experience with such machines suggests that finished goods that could be sold for \(\$ 6400\) would be ruined each year by the packaging machine. Ownership of the machine also would increase property taxes and insurance (paid annually) by \(\$ 600\) per year. Rooney's required rate of return is 20 per cent. Required:

a Prepare an analysis to determine whether the purchase of this machine is an acceptable capital expenditure for Rooney.

b What is the highest price Rooney should be willing to pay for the packaging machine?