Baby Yoda Inc. (BYI) is a large plastic manufacturing company that manufactures tea cups.

Grogu the owner estimates that if BYI invests $150,000 in a new machine it will save $39,000 in annual operating costs for the first 5 years and $35,000 in year 6. The machine has an estimated life of 6 years and no terminal disposal value.

The required rate of return is 11%. Ignore taxes. Assume all cash flows occur at year-end except for initial investment amounts.

REQUIRED:

1. Calculate the Net Present Value (NPV) of the new machine. (Use Excel). (2 marks)

2. Other than NPV, what other factors (financial and non-financial) should BYI consider when purchasing the machine? List and fully explain two. (2 marks). Hint: NPV is positive is not one of them.