Wesley Parks Pencil Company is considering the purchase of a new machine to make pencils.

The cost of the machine is \($248,000\). The pencil machine has an estimated useful life of 10 years and an estimated residual value of \($25,000\). Currently, the company leases a similar machine for \($45,000\) per year.

Required:

a. Determine the net present value of the pencil machine purchase under each of the following assumptions:

1. The cost of capital is 10 percent.

2. The cost of capital is 12 percent.

3. The cost of capital is 14 percent.

b. Determine the profitability index under each of the following assumptions:

1. The cost of capital is 10 percent.

2. The cost of capital is 12 percent.

3. The cost of capital is 14 percent.