Problem 2 (100 points) Book & Accounting Bookstore has used an old coding machine for 3 years and desires to buy a mew coding machine to help control book inventories. The price of new machine is $35,000 and it requires working capital of $4,000. Its estimated use ful life is 5 years and estimated salvage value for the calculation of depreciation is $5,000. The disposal value of the new machine will be $6,000 at the end of its useful life. Recovery of working capital will be $4,000 at the end of its useful life. Annual cash operating incomes of the new machine will be $20,000. The disposal value of the old machine at the time of replacement is $6,500. The old machine requires working capital of S6,000 and is expected to have zero disposal value at the end of the five-year life. Annual cash operating incomes of the old machine are $10,000. The company has a required rate of return of 14%. The income tax rate is 30%. Purchase Price Current disposal value Useful Life Disposal value at the end Estimated Salvage value Annual Depreciation Working capital Before-tax operating income $35,000 $40,000 5 6.500 5 years 5 years s 06,000 S 5,000 S 6,000 $10,000 $ 8,000 $6,000 4,000 $20,000 Income tax rate-30% Required Rate of Return = 14% Present value factor of $1 for 5 periods at l 4% 0.519 Present value factor of annuity for 5 periods at 14%-3.433 Required a. Compute the net present value considering the tax effects of cash flows and determine wbether the company should buy a new coding machine or not. (60 points) b. Compute the payback period of the investment on new machine considering the tax effects of cash flows. (30 points)