Review the data provided in Exercise 9.2.

Data From Exercise 9.2:

Mighty Vita produces a wide range of herbal supplements sold nationwide through independent distributors. In response to an increasing demand for its products, the company is considering the purchase of a new packaging machine to replace the seven-year-old machine currently in use. The new machine will cost $160,000, and installation will require an additional $15,000. The machine has a useful life of 10 years and is expected to have a salvage value of $8,000 at that time. The variable cost to operate the new machine is $10 per carton compared to the current machine’s variable cost of $10.10 per carton, and Mighty Vita expects to pack 250,000 cartons each year. If the new machine is purchased, Mighty Vita will avoid a required $10,000 overhaul of the current machine in four years. The current machine has a market value of $14,000.

Required

a. Calculate the net present value of the new packaging machine. Assume that Mighty Vita uses an 8% discount rate.

b. Do you recommend that Mighty Vita purchase the new machine? Why or why not?

c. Assume that Mighty Vita has adopted a new 12% discount rate. Do you recommend that Mighty Vita purchase the new machine? Why or why not?