Stirling Windows Inc. of Hong Kong is considering purchasing an automated cutting machine for use in the production of its stained-glass windows. The machine would cost $900,000. (All currency amounts are in Hong Kong dollars.) An additional $650,000 would be required for installation costs and for software. Management believes that the automated machine would provide substantial annual reductions in costs, as shown below:

Annual Reduction in Costs:

Labour costs$240,000

Material costs$93,000

The new machine would require considerable maintenance work to keep it in proper adjustment. The company's engineers estimate that maintenance costs would increase by $5,520 per month if the machine were purchased. In addition, the machine would require a $88,000 overhaul at the end of the sixth year.

The new cutting machine would be usable for eight years, after which it would be sold for its scrap value of $215,000. It would replace an old cutting machine that can be sold now for its scrap value of $83,000. Stirling Windows requires a return of at least 15% on investments of this type. (Ignore income taxes.)

Required:1.Compute the net annual cost savings promised by the new cutting machine.

2-a.

Using the data from requirement 1 above and other data from the problem, compute the new machine's net present value. (Use the incremental-cost approach.)

-b.Would you recommend that the machine be purchased?(yes or no)

3 .Assume that management can identify several intangible benefits associated with the new machine, including greater flexibility in shifting from one type of stained-glass window to another, improved quality of output, and faster delivery as a result of reduced throughput time. What dollar value per year would management have to attach to these intangible benefits in order to make the new cutting machine an acceptable investment?