1. Parker Industries is considering purchasing a new machine, instead of preparing its product by hand. The machine would cost $90,000. It would have a life of five years, but would require a $5,000 overhaul at the end of the third year. After five years, the machine could be sold for $15,000. The machine will cost $17,000 per year to operate. The company currently incurs a direct labor cost of $40,000 per year. This cost will not be incurred if the new machine is purchased. The machine will also allow the company to produce an additional 5,000 units per year. The company realizes a contribution margin of $0.70 per unit. Parker requires a 10% return on all investments in equipment. (Ignore taxes)

Period	Present Value of $1 @ 10%
1	0.909
2	0.826
3	0.751
4	0.683
5	0.621

a. What is the approximate net present value? a. $80,450 b. $16,000 c. $2,750 d. $(135,600)

e. $(78,500)

b. The internal rate of return for the machine would be: a. Zero b. Less than 10 percent c. Greater than 10 percent d. Equal to 10 percent

e. Cannot be determined