Wicked Good Cupcakes $($WGC$)$ expanded one year ago with the purchase of $3$

baking$/$packaging systems. A vendor, Acme Baking, has suggested that there would be

significant cost savings by the purchasing and installation of their newer integrated

baking technology. The existing systems and Acme$$s proposed integrated baking

technology have an expected useful life of $10$ years, with no salvage value. The WGC

tax rate is $45\%,$ and their IRR is $10\%.$

Here is a summary of the financials:

Present System Acme Baking

Gross Profit $$600,000$ $$1,200,000$

Less Depreciation $$300,000$ $$450,000$

Profit before tax $$300,000$ $$750,000$

Tax @ $45\%$ $$135,000$ $$338,000$

Profit After Tax $$165,000$ $$412,000$

Add Depreciation $$300,000$ $$450,000$

After Tax cash flow $$465,000$ $$862,000$

Instructions:

Based on the unit$$s material and what you have read above:

$1.$ Should WGC invest in Acme$$s technology? Why or why not? Base your decision

on determining the Net Present Value $($NPV$)$ as well as the difference in cash flows

between the present system and Acme$$s new technology.

$2.$ Does the increase in Gross Profit alone justify the new technology? Why or why

not?