Practice Problem 4 EXISTING SITUATION: PROPOSED SITUATION: 1 full time mach. operator--salary $20,000/year Fully automated machine: no operator required. Cost of maintenance--$5,000 per year Cost of machine--$55,000 Cost of defects--$5,000 per year installation fee--$5,000 Original cost of old machine ----$30,000 Cost of maintenance --$6,000 per year Expected life--10 years Cost of defects--$2,000 per year Age--5 years old Expected life--5 years Expected salvage value--$0 salvage value--$0 Depreciation method--Straight Line Depreciation method--Straight Line Current market value --$10,000 Marginal tax rate--34% Required Rate of Return--15% Using the above information, Evaluate this automated machine project using: 1) PP 2) NPV 3) PI 4) IRR Should this project be accepted? (Note: For this question, please assume that capital gains are taxed at the same 34% as ordinary incomes.)