$6\mathrm{.}3$

Berry Chips Inc. $(BCI)is$ considering acquiring a new semiconductor fabricator. The machine costs $$985,000,$ will last for eight years, and has a salvage value $of$ $$45,000.$ The forecasted net revenue stream $isas$ shown. For simplicity, assume all net revenues are received $at$ the end $of$ the year. BCI uses a discount rate $of9\%.$

Year $1$

Cost

Cash Inflows

Salvage Value

Net Cash Inflows

$0$

$$985,000$

$

$

$

$1$

$75,000$

$2$

$90,000$

$3$

$220,000$

$4$

$280,000$

$5$

$210,000$

$6$

$175,000$

$7$

$160,000$

$8$

$110,000$

$45,000$

Required:

$(a)Use$ the net present value method $to$ determine whether BCI should buy the machine.

$(b)Name$ two things that would have $to$ change for you $to$ change your decision. Assume cash flows cannot change.

$6\mathrm{.}4$

Required:

Use the data from Problem and Case $6\mathrm{.}3to$ recalculate part $(a)$ using a discount rate $of7\%.$