solution

krmaer company., 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?

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