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The Popeye Company is considering the purchase of a new spinach making machine to replace its present and machine. The new machine would cost $50,000 today and is expected to have a useful life of 7 years a salvage value of $2,500 at the end of its useful life. if the new machine is purchased the present machine will be sold to Brutus Company for $1,000 today. It is expected that the new machine would increase yearly production of spinach from 10,000 cans to 12,000 cans. Pop eye expects to additional cans and realize a contribution margin of $2 per can. annual operating costs of $20,000. Annual operating costs using the present machine are if the new machine is purchased it would require a $3,000 overhaul at the end of the fourth year in order to keep it running in top condition for the last three years. be able to sell all of the Also, the new machine would require $28,000. Finally, Assuming Pop eye has a cost of capital of 16%, determi should be purchased. Use the net present value tions. Use good form in your solution. ne whether or not the new machine (NPV) method and clearly show all calcula- Required: (A) x (8) PV Discount Net Present Factor @ 16% Amount of Cash Flows Year(s) Cash Flows Value Item | Cost of new machine Today CYr0 Net Present Value Would you accept or reject the proposal? Why? Explain

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