1. Clark Creations is considering a proposal to sell an existing lathe and purchase a new computer-operated lathe. Information on the existing lathe and the computer-operated lathe follow:

	Existing lathe	Computer-operated lathe
Original Cost	$100,000	$300,000
Carrying Value	40,000	-
Fair Value now	20,000	-
Salvage value in 4 years	-	60,000
Annual cash operating costs	200,000	50,000
Remaining useful life	4 years	4 years

Assuming that the companys cost of capital is 10%, which is to be used in discounted cash flow analysis. Requirement:

1. Compute the net present value of investing in the computer-operated lathe.

2. Compute the profitability index of investing in the computer-operated lathe.