Signs for Fields Machinery Ltd. Is considering replacement of some technologically obsolete machinery with the purchase of a new machine for $72,000. Although the older machine has no market value, it could be expected to perform the required operation for another 10 years. The older machine has an unamortized capital cost of $27,000.

The new machine with the latest in technological advances will perform essentially the same operations as the older machine but will affect cost savings of $17,500 per year in labour and materials. The new machine is also estimated to last 10 years, at which time it could be salvaged for $11,500.To install the new machine will cost $7,000.

Signs For Fields has a tax rate of 30%, and its cost of capital is 15%. For accounting purposes, it uses straight-line amortization, and for tax purposes its CCA is 20%.

a)Should Signs for Fields Machinery purchase the new machine?

b)If the old machine has a current salvage value of $9,000, should Signs For Fields purchase the new machine?

c)Calculate the IRR and PI for part a.