Magic Timber and Steel (Magic) has two options:

Keep the old machine, the Matrix 750, by spending money upfront to service and improve its

Buy the new and improved machine, the Delta

The proposed investment question asks, "Should Magic buy the new machine?" Thus, only one NPV calculation is required, which will include the net of the cash flows of the two options. If the NPV is a positive number, Magic should purchase the new Delta. If the NPV is a negative number, Magic should keep the Matrix.

Your team performed NPV calculation and the following table is the result. Table is available in the Case AssignmentPreview the document.

Your team also performed the following sensitivity analysis

Change the discount rate to 12 per

Change the Year 5 selling price of the Delta to $80,000.

Change the maintenance costs for the Delta: Year 1 costs are $1,000, increasing by $1,000 each

Change all of the above factors

Before you make a final report to Mr. Davidson, you try to think of other factors that have not been considered in the NPV analysis that might have an impact on the decision (quantitative and/or qualitative). You identify these factors as bullet points in your final report, along with a few sentences to explain their relevance.

Your final report must explain the NPV analysis and the Sensitivity analysis from your team report above, add other factors with explanation and finally make recommendation whether or not to purchase the Delta with detail reasons; the reasons must be explained thoroughly.