CanCan reported the following selected data for the year ended December 31, 2022:

Average operating assets	$4,500,000
Operating Income After Tax	350,000
Tax rate	30%

Included in the operating assets is a bottling machine which was acquired 4 years ago at a cost of $780,000. Although, this machine is still in good condition, management is considering replacing the existing bottling machine with an energy efficient machine. The current market value of the existing machine is $200,000 and the residual value is $20,000 if disposed at the end of 6 years. The following is the annual expenses associated with the existing bottling machine:

Annual expenses:	Existing bottling machine
Direct materials	$180,000
Direct labour	240,000
Quality Control	80,000
Factory Maintenance	60,000
Depreciation	76,000

On January 10, 2023, a manufacturer is offering to sell a new bottling machine to CanCan at a price of $940,000. The machine would last for 6 years and has an expected residual value of $40,000. The new machine will reduce $20,000 of inventory at the beginning; however, this amount will be tied up at the end of the 6^th year. With the new machine, CanCan expects to reduce the prime costs by 20% and the manufacturing overhead costs, excluding depreciation, by 40%. CanCan has a minimum desired rate of return of 4% and a cutoff period of 4 years in evaluating the new project. Managers who are being evaluated using Residual income (RI) are unsure whether this is a good idea.

1.

Identify the cost hierarchy level for each activity:

Activities	Cost Hierarchy
Quality Control	[ Select ] ["Unit Level", "Batch Level", "Product Level", "Organization/Facility-sustaining Level"]
Factory Maintenance	[ Select ] ["Unit Level", "Batch Level", "Product Level", "Organization/Facility-sustaining Level"]
Depreciation	[ Select ] ["Unit Level", "Batch Level", "Product Level", "Organization/Facility-sustaining Level"]

2.

Calculate the net initial investment:	$
Calculate the total annual cost saving:	$
Calculate the present value of the total annual cost savings (Rounded to the nearest dollar.) :	$
Calculate the total terminal value:	$
Calculate the present value of the total terminal value (Rounded to the nearest dollar.) :	$
Net Present Value (Rounded to the nearest dollar.) :	$

3. a)

Calculate the point of indifference in terms of annual cash flow: (Rounded to the nearest dollar.)	$
Determine the payback period: (Rounded to 4 decimal points.)	years
Determine the IRR: (Rounded to 1 decimal points. )	%

b)

Calculate the incremental accounting income (or loss) for the first year if the new bottling machine is purchased and the old bottling machine is sold.

Calculate the incremental cost savings:	$
Calculate the incremental depreciation expense:	$
Calculate the gain/loss of the sale of existing machine:	$
Calculate the incremental accounting income:	$

c)

Based on your calculations above, state your conclusion on whether the new bottling machine should be purchased:

Net Present Value	[ Select ] ["Yes", "Indifferent", "No"]
Payback Period	[ Select ] ["Yes", "Indifferent", "No"]
Accounting Income for the first year	[ Select ] ["Yes", "Indifferent", "No"]
Overall