Question #$2(12\mathrm{.}5$ marks$)$

Stephen Herron, owner of a small manufacturer, Isis Technology $($IT$),$ has asked you to provide your opinion on the options available to replace an old machine. Two suppliers have provided price and cost estimates. The supplier of the old machine, Canadian Equipment Inc. $($CEI$),$ has improved its equipment but continues with the same specialized design. A new supplier, Alto Design Equipment $($ADE$),$ has a new innovative design that can process any one of the products produced by IT$.$

Stephen is excited about the new design. Its products usually have a short life cycle where sales increase for five years and then decline. IT could use the new design proposed by ADE to process its products that will stabilize output over the next five years. IT's cost of capital is $11\%.$ After careful analysis of the two designs, he prepares the following forecast of the expected cash flows.

After$-$tax cash inflows and outflows for CEI and ADE equipment $($ $$000)$

$\backslash$table$[[$Machine$,$Initial investment,Incremental after$-$tax cash flow in period$],[1,2,3,4,5],[\backslash$table$[[$CEI$],[$ADE$]],-$$$190,000,$$$70,000,$$$60,000,$$$55,000,\backslash$table$[[\frac{\text{\$}45,000}{65,000}$