Harrison Inc. is considering the purchase of a new rendering machine for its animation facility. The machine costs

$81,000

and is expected to have a useful life of

eight

years, with a terminal disposal value of

$21,000.

The plant manager estimates the following savings in cash operating costs are expected to be

$24,000

per year. However, additional working capital is needed to maintain the operations of the rendering machine. The working capital must continually be replaced, so an investment of

$9,000

needs to be maintained at all times, but this investment is full recoverable (will be "cashed in") at the end of the useful life.

Harrison

Inc.'s required rate of return is

10%.

Ignore income taxes in your analysis. Assume all cash flows occur at year-end except for initial investment amounts.

Harrison

Inc. uses straight-line depreciation for its machines.

Required:

1.	Calculate NPV.
2.	Calculate IRR.
3.	Calculate AARR based on net initial investment.
4.	Calculate AARR based on average investment.
5.	You have the authority to make the purchase decision. Why might you be reluctant to base your decision on the DCF methods?