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ABC Co. is evaluating a new processor to prepare personalized reports for insurance client.

ABC Company will serve 200,000 client per year for the foreseeable future, from which a $2.75 per client revenue is expected to be earned.

The report is currently prepared on an old machine which was acquired 3 years ago at a cost of $122,200 (salvage value of $15,000) and is now worth $57,800.

A buyer is willing to purchase the old machine for $60,000.

The new machine will have a useful life of 5 years, cost $215,000 and have a salvage value of $25,000.

Incidental costs of installation, freight in and insurance will have to be incurred at a total cost of $3,000.

Additional gross working capital of $8,000 will be needed to support operations planned with the new machine.

Should the company decide to retain the old machine, the same must be upgraded and subjected to major parts repairs.

The estimated cost for this repairs expense (which is tax deductible) amounts to $5,000. Comparative cash operating expenses are:

Old machine: Variable cost=$2.00 per client; Fixed cost=$100,000

New machine: Variable cost $1.70 per client; Fixed cost= $ 80,000

Assume a straight-line depreciation, a 40% tax rate, and a 14 % cost of capital.

Compute for the following:

a. Net cost of investment b. NPV index c.Payback period d.Accounting net income e. Accounting rate of return f. Profitability index

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