Robin Inc. is considering purchasing a new machine. The following information is available: Cost of machine $200,000 ($100,000 down, $25,000 at the end of years 1-4)

Life 10 years

Residual value $6,000

Repairs Year 4, $3,000; Year 8, $2,000

Annual savings Years 1-7, $30,000 per year. Years 8-10, $20,000 per year.

Working capital requirement $10,000

Old machine – The company has an old machine that it will not need and will sell if they purchase the new machine.

Cost $160,000

Accumulated depreciation $140,000

Book value $20,000

Sell for $25,000

Gain $5,000

Required: If the required rate of return is 10%, should Robin, Inc. purchase the new machine?

Using the net present value method.
Using the payback method. The company wants a return within 5 years.
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