Uncle Rico produces football videos. His cost of capital is 6%. Currently, he is analyzing purchase alternatives for video equipment. Data relevant to the decision are as follows: Machine B: Cost $120,000 Salvage Value: $500 Machine A: Cost $93,000 Salvage Value: $4,000 Cash flow year 1 0.94334 $ 33,000 year 2 0.89000 21,000 year 3 0.83962 20,000 year 4 0.79209 23,000 year 5 0.74726 year 1 year 2 year 3 Cash flow $ 26,000 26,000 26,000 26,000 26,000 year 4 25,000 Year 5 1. Taking into account the cash flows AND the salvage value, use the net present value method to prepare an analysis to determine which machine Uncle Rico should purchase. 2. Compute the excess present value index of each machine 3. Conclude your analysis by stating which machine should be purchased, and state your reason. Project A: Project B: Cost of Project Additional Revenue per year 1,695,000 1,957,080 1,009,113 1,551,623 Additional Expenses per year (these expenses do NOT include depreciation expense) 1,350,000 1,273,555 Estimated Life Residual Value Cost of Capital 14,720 12% 5,262 14% additional information: All of the revenue will be received and all of the expenses will be paid by year-end The straight line depreciation method is used. Expanded present value tables are in Canvas Report: Compute the cash payback period, the ARR, and the NPV of each project. (worth 70% of project grade) Compute the excess present value index for each project. (5%) Disregarding residual value, what is the approximate IRR for each project? (10%) Describe the advantages and limitations of evaluating projects using these three methods of capital budgeting: cash payback analysis, ARR, and NPV. (10%) Which is the better project for your company Describe your reasons for selecting this project. (5%)