Castall Inc. purchased a machine $2$ years ago for $$80000.$ When it was

purchased, the machine had an expected useful life of $5$ years, and an estimated

scrap value of $$10000$ at the end of its useful life. The machine is depreciated

using a straight line method, and can currently be sold for $$35000.$ The finance

manager is considering the feasibility of buying a new machine with an

operational life of $4$ years. The forecasted cash flows arising from this new

machine is given as follows

Initial cost outlay of $$100000,$ with a further $$10000$ to install it$.$

Sales will be expanded from the $$40000$ to $$45000$ per year.

Annual operating costs will be reduced from $$12000$ to $$8000.$

A positive change in net working capital of $$12000.$

Zero scrap value at end of operational life.

Castall Inc has a cost of capital of $10\%.$

a$)$ Calculate the Net Present Value $($NPV$)$ if Castall Inc continues to operate

the old machine.

b$)$ Calculate the initial investment associated with the acquisition of the new

machine.

c$)$ Using your result in part $($b$),$ calculate the Net Present Value $($NPV$)$ if

Castall Inc purchase the new machine now.

d$)$ Should Castall Inc continue to operate the old machine or purchase the new

machine now? Why?