5. A manufacturing company purchases a new machine at a cost of $600,000, plus annual maintenance costs at the end of every year of $15,000. The machine is expected to last for 15 years. At the end of 15 years, the company can sell the machine for $25,000 (and buy a new machine). (a) The company wishes to produce and sell R units of output each year at a price of $95.75 per unit. The company estimates the following additional costs of doing business: Direct costs = $30 per unit of output Indirect costs (salaries, heat, hydro, other expenses) = $200,000 a year (assume paid at the end of each year) The company also requires a rate of return of 10% on any invested money or project that it undertakes. In order to earn 10% per year, and based on the information given with all values assumed to remain constant forever, what is the value of R? (Hint: Write out the cash outflows and cash inflows - assume the company sells their units of output at the end of every year. Set up the net present value formula for the net cash flows and solve for the R that gives an IRR of 10%) (6 marks) (b) The company will depreciate the machine using the constant percentage method. However, after 7 years, the company decides it would be better to switch to the physical service method. They estimate at that time, the machine has a future lifetime of 44,500 units of output, allocated as follows: End of Year 9 11 12 15 Units of Output 5000 5500 6500 5500 Set up a depreciate schedule for years 8 through 15, showing the yearly depreciation expense, total depreciation and book value. (6 marks) 8 13 10 6000 14 5000 6000 5000