ICP #2 13.39 L03 LO4 NPV, Payback Methods, and ARR TubeFab Inc. is considering replacing its metal tubing machine acquired 2 years ago at a cost of $50,000. This machine is still in good condition but management wants more flexibility and lower manufacturing costs. The actual current market value of the machine is $20,500, with a salvage value of $2,000 in 10 years. A manufacturer is offering a new metal tubing machine at a price of $60,000. The machine would last 10 years and has an expected salvage value of $4,000. The new machine will require an additional $5,000 in working capital, which will be recovered at the end of the 10th year. With the new machine, management estimates an important decrease in the manufacturing costs: Old Tubing Machine New Tubing Machine Annual expenses: Direct labour $ 13,500 $ 7,900 Machinery costs 3,000 3,400 Cleaning & setup 2,500 1,200 Depreciation 4,000 5,600 Annual production (in 500,000 500,000 units) TubeFab has a minimum desired rate of return of 8% and a cutoff period of 4 years in evaluating the new project. REQUIRED A. What is the net present value of this machine? B. Calculate the point of indifference in terms of annual cost savings (or cash flow). C. What is the payback period? D. What is the accrual accounting rate of return (AARR)? E. Based on your calculations above, state your conclusion on whether the new tubing machine should be purchased. Please briefly comment on quantitative measures and qualitative issues