Martin Company is considering purchasing $1,000,000 worth of new production machinery, which will increase Earnings Before Interest and Tax by $400,000/year. Procurement of these machines requires an installation fee of $ 50,000, shipping costs $ 10,000 and to operate these machines workers need special training at a cost of $ 40,000. Due to the use of this new machine, the level of production efficiency increased so that working capital, especially inventory, increased by $ 150,000. This machine is estimated to have an economic life of 10 years and has no residual value, however it is estimated that it can be sold at 5% of its cost. The tax rate is 20% and the desired rate of return is 15%pa.

Analyze the feasibility of this company in purchasing this new machine:

a. What are the initial outlays (COF) of the procurement of this new machine?

b. How much cash inflow per year will be obtained for using the machine This?

c. What is the terminal cash flow from the procurement of this new machine? d. Is the company feasible to execute the purchase of this machine, use NPV and IRR calculations?