The Canadian company Encircled Ltd makes thoughtfully designed , versatile capsule wardrobe essentials . All fabrics are thoughtfully chosen to meet the company's high standards in wearability and sustainability . Currently the company is attaching the tags to its products manually . To improve the production process , the management decided to buy a new tagging machine . The machine costs $35,000 and would last for 10 years . At the end of the useful life , the machine could be sold for $1,750 . In addition , at the end of the seventh year, the machine would require an overhaul for $10,750 .

Encircled estimates that the annual operating costs of the machine is \$8,450 . The current manual method of attaching tags costs $ 6,300 per year . The purchase of the machine , however , would help the company increases its capacity by 8,300 units . The associated unit contribution margin is $ 3.40 . Encircled requires 12% return on all investment in equipment and machinery

Instructions

What net annual cash inflows will be provided by the new tagging machine ? (2 marks )

(b) Compute the new machine's net present value . Use the incremental cost approach , and round all dollar amounts to the nearest whole dollar . Clearly state the PV factor (s) used . (6 marks )

(c ) Should Encircled purchase the new tagging machine