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MILA Home Company is planning to purchase a special machine capable to do certain operations...

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Accounting

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MILA Home Company is planning to purchase a special machine capable to do certain operations that are now performed manually. This machine will cost $135,000, and it will last for four years. At the end of the fourth-year period, the machine will have residual value of zero. Moreover, use of the machine will reduce labour costs by $78,000 in year 1, $75,000 in year 2, $71,000 in year 3, and $68,000 in year 4. MILA Home Company requires a minimum return of 25 percent before taxes on all investment project. Required: a) should the machine be purchased? Use the net present value method in your calculation. (13 marks) PV of Future Cost Savings Future Cost Savings Year 1 Year 2 Year 3 Year 4 Total NPV Calculation: NPV Calculation: PV of Future Cost Savings Less: Initial Cost of Investment Net Present Value (NPV) b) What is the payback period for this machine? (4 marks) c) Which method would you prefer and why

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