Idlewood Production Company would like to purchase a production machine for $450,000. The machine is expected to have a life of four years, and a salvage value of $50,000. Annual maintenance costs will total $12,500. Annual savings are predicted to be $175,000. The company's required rate of return is 12 percent. (12marks)

Factors: Present Value of $1		Factors: Present Value of an Annuity
(r = 12%)		(r = 12%)
Year 0	1.0000
Year 1	0.8929	Year 1	0.8929
Year 2	0.7972	Year 2	1.6901
Year 3	0.7118	Year 3	2.4018
Year 4	0.6355	Year 4	3.0373

Required:

1. Calculate the net present value of this investment (ignore income taxes). Round all calculations to the nearest dollar.

1. Based on your answer in requirement (a), should Idlewood purchase the production machine?