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Huon Cheese wants to buy a product wrapping machine to replace several employees. The outlay required is $300,000. The machine will be useful for five

Huon Cheese wants to buy a product wrapping machine to replace several employees.

The outlay required is $300,000. The machine will be useful for five years at which time the organisation will upgrade. The machine will have a $91,000 expected salvage value. Huon Cheese will save $70,000 per year in employee salaries but the machine will need $5,000 of maintenance per year.

The cost of capital is 10 per cent and a payback period of 5 years is expected.

Use the following present value table to help calculate your answer:

Number of Periods

9%

10%

11%

1

0.917

0.909

0.901

2

0.842

0.826

0.812

3

0.772

0.751

0.731

4

0.708

0.683

0.659

5

0.650

0.621

0.593

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