Consider a factory that produces light bulbs. The factory has an old piece of equipment, and the factory owner is considering replacing the old equipment with a new machine. The owner is considering two options, with the following details:

	Machine A	Machine B
Cost to purchase the machine	$90,000.00	$75,000.00
Variable cost per light bulb	$0.18	$0.26
Fixed cost per year	$100,000.00	$25,000.00
Life span (years)	10	10
Number of light bulbs factory will sell per year	600,000	500,000

• The factory sells each light bulb for $0.40, the discount rate is 12%, and the corporate tax rate is 25%. The purchase of the machine occurs at year 0 and subsequent cash flows occur from years 1 through 10. Assume straight-line depreciation to zero for both machines. Assume no investment in net working capital. There is no salvage value.
• Using cash flows; solve for NPV, IRR, Payback period, Discounted payback period and Profitability Index for both machines.
• The factory needs only one new machine. Which machine should the factory owner buy?