Hawkeye Cleaners has been considering the purchase of an industrial dry-cleaning machine. The existing machine is operable for three more years and will have a zero disposal price. If the machine is disposed of now, it may be sold for P60,000. The new machine will cost P200,000, and will require an increase to working capital of P60,000. The new machine will reduce the average amount of time required to wash clothing and will decrease labour costs. Due to these labour savings, the investment is expected to net P50,000 in additional cash inflows during the year of acquisition and P150,000 each additional year of use. These cash flows will generally occur throughout the year and are recognized at the end of each year. Income taxes are not considered in this problem. What is the net present value of the investment assuming the required rate of return is 10 percent? Would the company want to purchase the new machine?
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