CAPITAL BUDGETING You do not have to get the correct answers to receive full points for this HW. However, you must demonstrate that you have made a diligent effort to complete the problem correctly. The cash flow schedule needs to be neat with all lines clearly labeled. Tiger Computers of Singapore is considering the purchase of an automated etching machine for use in production of its circuit boards. The machine would cost $900,000. (All currency amounts are in Singapore dollars). An additional $650,000 would be required for installation costs and for software. Management believes that the automated machine would provide substantial reductions in cost as shown below: Labor costs Material costs Annual Cost Reduction $240,000 $96,000 The new machine would require considerable maintenance work to keep it in proper adjustment. Tiger's engineers estimate that maintenance costs would increase by $4,250 per month if the machine were purchased. In addition, the machine would require a $90,000 overhaul at the end of the sixth year. The new etching machine would be useable for 10 years, after which it would be sold for scrap for an estimated $210,000. It would replace an old machine that has a scrap value of $70,000. Tiger Computers requires a return of at least 18% on investments of this type. Required: 1. Compute the net annual cost savings promised by the new etching machine. 2. Draw out a schedule of cash flows with appropriate labels for each line. 3. Compute the new machine's net present value using the incremental cost approach (incremental costs are those costs that will change because of the project - you can ignore costs that will not change). Would you recommend that Tiger Computers purchase the machine? Why or why not? 4. What is the IRR on this proposed purchase? 5. Assume that management can identify several additional benefits associated with the new machine, including greater flexibility in shifting from one type of circuit board to another, improved quality of output, and faster delivery as a result of reduced throughput time. What dollar value per year would management need to attach to these additional benefits to make the new etching machine an acceptable investment