Globe Limited is considering a new Machinery, Relevant details are as under:

Cost of New machinery: $ 10,000; Life 6 years; WACC: 8.5%

Additional Costs

Overhead: $2000 each year

Annual Savings

Direct materials: Year 1-3: $2750; Year 4-5: $2420; Year 6: $2970

Direct labor: Year 1-2: $1650; Year 3-4: $1430; Year 5-6: $1540

Inflation Rates

Direct materials: Year 1-2: 8%; Year 3-4: 10%; Year 5-6: 12%

Direct labor: Year 1-3: 12%; Year 4-5: 8%; Year 6: 10%

Factory Overhead: Year 1: 8%; Year 2-5: 12%; Year 6: 10%

Required: 

Calculate the following. Show each and every calculation clearly. Round up to two decimal places.

 

Net Present Value (NPV)

Profitability Index (PI)