Chico Company is considering the purchase of a new high-speed machine for its factory. The machine will cost $160,000 and will save the company $45,000 per year in cash operating costs. The machine has an estimated useful life of five years and expected salvage value of $ 5,000 at the end of useful life. The company's cost of capital is 12%.

QUESTION:

1) Compute the net present value of this investment. (3)

2) What is the maximum amount that Chico should be willing to pay for the machine?(3)

3) Calculate the projects payback period. (1)

4) Calculate the present value index of the project. (1)

5)Is the investment acceptable based on NPV? Explain. (2)