New berry and Mills Company is considering the purchase of new robotic manufacturing equipment. The purchase price is $85,000. The cost
for shipping the machine to the plant is $2,000. Another $3,000 will be spent to remodel the area in which the machine is to be installed. The
purchase price includes installation costs. The company has already spent $1,500 in travel costs and employee time on the search for this
equipment. The machine is expected to save $30,000 per year in labor and insurance expenses over the next four years and is expected to be
obsolete in four years. New berry and Mills use a 10% discount rate as the required rate of return on capital budgeting projects. Ignore
income taxes.
REQUIRED:
• A. Calculate the net present value.
• B. Calculate the profitability index.
• C. Calculate the internal rate of return.
• D. Calculate the payback period.
• E. List factors that you would vary to perform sensitivity analysis and explain why you would vary them
