ABC Corporation has a machine that requires repairs or should be replaced. ABC has evaluated the two options and calculated the cash flows resulting from each option as follows:

Option A: Repair the Machine

Year Cash Flow

0 $66,000.00

1 $ 18,500.00

2 $35,100.00

3 $18,500.00

4 $17,800.00

5 $12,700.00

Option B: Buy a new Machine

Year Cash Flow

0 $ 400,500.00

1 $55,300.00

2 $133,000.00

3 $ 119,800.00

4 $127,900.00

5 $134,100.00

You have recently been hired by ABC corporation and your first assignment is to help them decide which of these two options should be pursued. You would like to apply the capital budgeting and Time Value of Money concepts you have learnt in FIN 301 to analyze the solution and present it to your boss in three days.

Conduct the analysis and calculate Payback period for each option, IRR of each option and NPV for each option at three WACC points of 10%, 12%, 15%, and 17%.

Write a memo to your boss, explaining the results of your analysis, your decision and include a table and a chart showing your analysis.