Robin Inc. is considering purchasing a new machine. The following information is available:

Cost of machine $200,000 ($100,000 down, $25,000 at the end of years 1-4) Life 10 years Salvage value $5,000 Repairs Year 4, $3,000; Year 8, $2,000 Annual savings Years 1-7, $30,000 per year. Years 8-10, $20,000 per year.

Working capital requirement $10,000

Old machine The company has an old machine that it will not need and will sell if they purchase the new machine.

Cost $160,000

Accumulated depreciation $140,000

Book value $20,000

Sell for $16,000

Loss $4,000

Required: If the required rate of return is 8%, should Robin, Inc. purchase the new machine?

A. Using the net present value method.

B. Using the payback method. The company wants a return within 5 years.