Hern Company is considering the purchase of a new machine. The cost of the machine is $248,000. It has an estimated useful life of 10 years and an estimated residual value of $25,000. Currently, the company leases a similar machine for $45,000 per year.

a. Determine the net present value of the machine purchase and the profitability index under each of the following assumptions:

1. The cost of capital is 10%

2. The cost of capital is 12%