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Stirling Windows Inc. of Hong Kong is considering purchasing an automated cutting machine for use in the production of its stained-glass windows. The machine would cost $900,000. (All currency amounts are in Hong Kong dollars.) An additional $650,000 would be required for installation costs and for software. Management believes that the automated machine would provide substantial annual reductions in costs, as shown below:

Annual Reduction

in Costs

Labour costs $ 240,000 Material costs $ 98,000

The new machine would require considerable maintenance work to keep it in proper adjustment. The company's engineers estimate that maintenance costs would increase by $5,020 per month if the machine were purchased. In addition, the machine would require a $98,000 overhaul at the end of the fifth year.

The new cutting machine would be usable for nine years, after which it would be sold for its scrap value of $280,000. It would replace an old cutting machine that can be sold now for its scrap value of $68,000. Stirling Windows requires a return of at least 18% on investments of this type. (Ignore income taxes.)

Stirling Windows Inc. of Hong Kong is considering purchasing an automated cutting machine for use in the production of its stained- glass windows. The machine would cost $900,000. [All currency amounts are in Hong Kong dollars.) An additional $650,000 would be required for installation costs and for software. Management believes that the automated machine would provide substantial annual reductions in costs, as shown below: Annual Reduction in Costa Labour coats $240,000 Material costs 5 53,000 The new machine would require considerable maintenance work to keep it in proper adjustment. The company's engineers estimate that maintenance costs would increase by $5,020 per month if the machine were purchased. In addition. the machine would require a $98,000 overhaul at the end of the fifth year. The new cutting machine would be usable for nine years. after which it would be sold for its scrap value of $230,000. It would replace an old cutting machine that can be sold now for its scrap value oi $58,000. Stirling Windows requires a return of at least 18% on investments of this type. [Ignore income taxes.) Required: 1. Compute the net annual cost savings promised by the new cutting machine. 2-a. Using the data from requirement1 above and other data from the problem. compute the new machine's net present value. [Use the incremental-cost approach} (Hint Use Microsoft Excel to calculate the discount factortsH (Do not round intermediate calculations and round your Iinal answer to the nearest dollar amount. Negative amount should be indicated by a minus sign.) 2-3. Using the data from requirement1 above and other data from the problem. compute the new machine's net present value. [Use the incremental-cost approach} {Hint Use Microso Excel to calculate the discount factor(s}.] (Do not round intermediate calculations and round your final answer to the nearest dollar amount. Negative amount should be indicated by a minus sign.) 2-b. Would you recommend that the machine be purchased? 0N0 A ' _ 'Yes 3. Assume that management can identify several intangible benets associated with the new machine. including greater exibility in shifting from one type of stained-glass window to another, improved quality of output, and faster delivery as a result of reduced throughout time. What dollar value per year would management have to attach to these intangible benefits in order to make the new cutting machine an acceptable investment? (Hint Use Microsoft Excel to calculate the discount factorile (Do not round intermediate calculations and round your final answer to the nearest dollar amount.) _ per y