Required

Use the net present value concept recommend to Ms. Laila whether Jericho should purchase the new machine. Support your recommendation with very clear calculation.

Jericho Company is considering the purchase of a new machine. The invoice price of the machine is $210,000. In addition, it is estimated that the reasonable and necessary expenditures to put the new machine in use is $15,000. The machine is expected to have zero salvage value after a useful life of 5 years. Existing equipment could be retained and used for an additional 5 years if the new machine is not purchased. At that time, the salvage value of equipment would be zero. If the new machine is purchased now, the existing machine would have to be scrapped. Jericho accountant, Ms. Laila, has accumulated the following data regarding annual sales and expenses with and without the new machine. 1. Without the new machine, Jericho can sell 18,000 units of product annually at a per unit selling price of $100. If the new machine id purchased, the number of units produced and sold would increase by 15%, and the selling price would remain the same. 2. The new machine is faster than the old machine, and it is more efficient in its usage of materials. With the old machine the gross profit rate will be 25% of sales, whereas the rate will be 30% of sales with the new machine. 3. Annual selling expenses are $207,000 with the current equipment. Because the new equipment would produce a greater number of units to be sold, annual selling expenses are expected to increase by 15% if it is purchased. 4. Annual administrative expenses are expected to be $115,000 with the old machine, and $132,250 with the new machine. 5. The current book value of the existing machine is $54,000. Jericho uses straight line depreciation. 6. Assume the after-tax required rate of return is 12% and the tax rate is 30%. Required Use the net present value concept recommend to Ms. Laila whether Jericho should purchase the new machine. Support your recommendation with very clear calculation