Ayayai Pix currently uses a six-year old molding machine to manufacture picture frames. The company paid $100,000 for the machine, which was state of the art at the time of purchase. Although the machine will likely last another 10 years, it will need a $10,000 overhaul in four years. More important, it does not provide enough capacity to meet customer demand. The company currently produces and sells 12,000 frames per year, generating a total contribution margin of $97,500.

Martson Molders currently sells a molding machine that will allow Ayayai Pix to increase production and sales to 15,150 frames per year. The machine, which has a ten-year life, sells for $121,000 and would cost $9000 per year to operate. Ayayai Pix current machine costs only $8,000 per year to operate. If Ayayai Pix purchases the new machine, the old machine could be sold at it's book value of $5,000. The new machine is expected to have a salvage value of $18,500 at the end of it's 10-year life. Ayayai Pix uses straight-line depreciation.

a) Calculate the new machine's net present value assuming a 14% discount rate.

b) Use Excel or a similar spreadsheet application to calculate the new machine's internal rate of return.

c) Calculate the new machine's payback period.