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.

a)

CanCan financed the old bottling machine by borrowing 50% from a local bank, with 4% interest rate, raising 20% from new shareholders, with 8% required rate of return, and the rest from retained earnings, with 5% required rate of return.

Calculate the effective cost of debt:	%
Calculate the effective cost of new shares:	%
Calculate the effective cost of retained earnings:	%
Calculate the WACC:	%

b)

Calculate the Cost of Capital, using the WACC:	$
Calculate the Economic Value-Add (EVA):	$
Calculate the residual income (RI):	$

c)

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.) :	$