INFORMATION OLD MACHINE: Original Purchase Price $ 550,000.00

Original Life 10 YEARS Remaining Life 5 YEARS

Straight line depreciation in use

Salvage Value $ 50,000.00

Current Fair Market Value $ 260,000.00

INFORMATION NEW MACHINE A: Purchase Price $895,000.00

Estimated Life 5 YEARS

Use Straight Line Depreciation Method Estimated Salvage Value $ 10,000.00

Estimated Net Operating Cash Flow Increase/Decrease (Prior to Depreciation and Taxes)

End of Year 1 $ 100,000.00

End of Year 2 $ 150,000.00

End of Year 3 $ 250,000.00

End of Year 4 $ 200,000.00

End of Year 5 $ 200,000.00

ASSUMPTIONS: Tax Rate 40% WACC Rate 7%

If you keep the old machine, the NPV is:

A. 118,567

B. 117,653

C. 30,489

D. 300,410

40 points QUESTION 2 If you sell the old machine and buy new machine A, the NPV will be:

10,619

-4,995

-5,859

2,907