Metro Bottling Company is contemplating replacing one of its bottling machines with a newer and more efficient one. A just completed consultant$$s report, which cost Metro $$12,000,$ provided the following rationale for the purchase.

The old machine has a current value of $$300,000$ and a remaining useful life of four $(4)$ years. If Metro keeps the machine for another $4$ years, it should be able to sell it at that time for its remaining book value. The new machine has a purchase price of $$1,185,000,$ an estimated useful life of four $(4)$ years, and estimated salvage value equal to its remaining book value after four years. Installation will cost $$15,000.$ The new machine will economize on electric power usage and labor and repair costs, as well as reduce the number of defective bottles.

A total annual savings of $$250,000$ will be realized if the machine is installed. The new machine will also free up $$10,000$ in working capital. Both machines fall into CCA Class $43,$ which has a $30\%$ CCA rate. The company$$s tax rate is $30\%,$ and it has a WACC of $8\%.$

Answer the questions below.

Additional information:

$1.$ estimate depreciation for old machine next year at $30\%$; depreciation on new machine in the first year is $45\%$ and $30\%$ in all subsequent years $($CCA rate $\backslash$times $1\mathrm{.}5$ is applied in year $1$ on new equipment only$)$

$2.$ negative pre$-$tax profits should incur tax refunds $($lower tax payments on other projects in the portfolio$).$

$$

Q$1(80$ points$)$ Should the company purchase the new bottling machine? Estimate net present value. Show all calculations$/$tables$.$

Q$2(5$ points$)$ For your total cash flow estimate from previous problem, estimate payback period. Show your calculations.

Q$3(5$ points$)$ What is internal rate of return for the project? Do not perform calculations $$ indicate range or approximate value.

Q$4(5$ points$)$ Estimate$/$report profitability index for the project.

Q$5(5$ points$)$ Report a summary of five investment criteria for the project.

npv

irr

payback

discounted payback

profitability index