The management of Devine Instrument Company is considering the purchase of a new drilling machine, model RoboDril 1010K. According to the specifications and testing results, RoboDril will substantially increase productivity over AccuDril X10, the machine Devine is currently using. The AccuDril was acquired 8 years ago for $110,000 and is being depreciated using the straight-line method over a 10- year expected life and an estimated salvage value of $20,000. The engineering department expects the AccuDril to keep going for another 3 years after a major overhaul at the end of its expected useful life. The estimated cost for the overhaul is $90,000. The overhauled machine will be depreciated using straight-line depreciation with no salvage value. The overhaul will improve the machine's operating efficiency approximately 15% for each of years 3, 4, and 5. No other operating conditions will be affected by the overhaul. RoboDril 1010K is selling for $220,000. Installing, testing, rearranging, and training will cost another $10,000. The manufacturer is willing to take the AccuDril as a trade-in for $20,000. The RoboDril will be depreciated using the straight- line method with no salvage value. New technology most likely will make RoboDril obsolete to the firm in 5 years. Variable operating cost for either machine is the same: $8 per machine hour (cash-based). Other pertinent data follow: AccuDril RoboDril X10 1010K Units of output (per year) 10,000 8,000 100 10,000 4,000 $ Machine hours Selling price per unit Variable manufacturing cost-cash-based (not including machine hours) Other annual expenses (tooling and supervising) Disposal value-today Disposal value-in 5 years 100 $ $85,000 $25,000 $ 25 25 $55,000 $30,000 Devine Instrument Company's weighted-average cost of capital (WACC) is 11%, and it is in the 40% tax bracket. Use the PV factors (Appendix C, Table 1) for calculating the NPV of each decision alternative. a) After-tax Cash Flows PV of Net Cash 4. Outflows Overhaul AccuDril After-tax cash operating cost Overhaul cost (capitalized) Tax savings on depreciation (straight-line method) Other cash expenses, after tax After-tax cash flows Total PV Buy RoboDril 1010k Net equipment purchase After-tax cash operating cost Tax savings on depreciation Other cash expenses, after tax After-tax salvage value After-tax cash flows Total PV PV Difference in cash flows between alternatives b) Payback Period in Years: