Brook Company is considering the purchase of a new machine for use in its production process. The cost of the machine will be $150,000. The purchase will require working capital of $15,000 at the time of acquisition of the new machine. This working capital is expected to be fully recovered at the end of the project. The machine has a 5-year useful life and will be depreciated on a straight-line basis with zero terminal disposal value. The annual cost savings due to increased operating efficiency is $45,000 each year. The new machine is expected to have a salvage value at the end of five years equal to $3,000. Brook Company is in a 40% tax bracket and has a 10% required rate of return. Show all work.

a. What is the net present value (NPV) of this investment (round solutions to dollars)?

b. What is the payback period if the new machine is purchased (round to two decimals)?

c. Based on the NPV analysis, should Brook Company accept or reject the purchase of the new machine? Explain why or why not?