(18 marks): Highquality Co. is thinking about replacing an old texture sprayer machine with a new one. The management has narrowed the choices to Victory Spray and Power Sprayer. The Victory Spray costs $1,800,000 and requires $23,000 maintenance cost each year. At the end of the sprayer's five-year life, Highquality expects to be able to sell it for $350,000. The Victory sprayer machine will add $390,000 per year to the company's pre-tax revenue but require an upfront investment of $150,000 in net working capital. The second option, Power Spray, costs $800,000 and needs $27,000 maintenance cost each year. At the end of the Power Sprayer's three-year life, Highquality expects to be able to sell it for $170,000. The Power sprayer machine will add $210,000 per year to the company's pre-tax revenue but require an upfront investment of $100,000 in net working capital.

Both machines will be in CCA Class 43 (30%). The tax rate is 40%, and the discount rate is 15%. Highquality expects to be able to reclaim its investment on NWC when the life of the purchased sprayer machine is over.

1. (5 marks)What is the NPV of the decision to buy the Victory Spray machine?
2. (5 marks)What is the NPV of the decision to buy the Power Spray machine?
3. (6 marks)Which machine should Highquality purchase? Why?
4. (2 marks)Would the IRR for the Power sprayer be greater than, less than or equal to the discount rate? Explain your answer.