# solution

Question 3 options:

N&N Inc., a local food processing company, is
considering an opportunity to upgrade its current packaging machine
for the next five years.

The existing machine was purchased five years ago for \$50,000
and can be sold now for \$30,000. Its resale value in five years
will be \$5,000. The purchase price for the new machine will be
\$110,000. In addition, the vendor of the new machine will charge
\$10,000 for shipping and installation. The resale value of the new
machine in five years will be \$30,000. The new machine will
allow N&N to reduce inventories by \$5,000, but the inventories
will be restored to the current level at the end of five years.
Both machines belong to a class with a CCA rate of 30 percent.
N&N’s tax rate is 35% and the cost of capital is estimated
to be 20%. N&N estimates that the new machine will reduce
operating expenses by \$35,000 per year and increase revenues by
\$5,000 per year for five years. The new machine will be
financed by a bank loan and interest payments for the loan are
estimated to be 3,000 every year.

The discounted cashflows for period 0
(including all initial cashflows and changes in working
capital) are?

Answer rounding to the nearest integer (ZERO
decimals), do not include any symbols, like dollar signs (\$)
percentage signs (%) or thousand separators (,). If solution is a
negative number include a – sing before the number whiteout any
space. For example : -1152

The discounted cashflows for period 5 (including all
terminal cashflows and operative cashflows) are?

Answer rounding to the nearest integer (ZERO
decimals), do not include any symbols, like dollar signs (\$)
percentage signs (%) or thousand separators (,). If solution is a
negative number include a – sing before the number whiteout any
space. For example : -1152

The NPV of the replacement project is ?

Answer rounding to the nearest integer (ZERO
decimals), do not include any symbols, like dollar signs (\$)
percentage signs (%) or thousand separators (,). If solution is a
negative number include a – sing before the number whiteout any
space. For example : -1152

Should the company replace the equipment (yes or
no)?

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