Reference no: EM132640933

Mr Michael Maguire lives in Wombat, in the central west of New South Wales. Michael owns a 3000 acre farm in Young, and the main crop he grows is cherries. He has decided he needs to acquire a better and more efficient spraying machine.

• Some specialist spraying machines are available in Toronto, Canada at the firm Maple Partners Agricultural Supplies at the retail outlets of the pastoral company. Last month Michael flew to Toronto on Air Canada Flight AC31 for $3520 return. Michael stayed overnight in Toronto as a guest of Maple Partners Agricultural Supplies and so did not incur any accommodation expenses. In Toronto, Michael saw three different spraying machines, but he was unsure which one he should buy. They are all new and all manufactured in either Canada or United States.

• One week ago Michael decided that the decision was a lot more complex than he could have imagined and decided to ask a consultant, Mrs Lynette Lowry, to advise on which of the three machines he should purchase. Lynette is an agricultural consultant, with an honours degree in Agricultural Economics although she did fail her second year accounting course. Michael has just received Mrs Lowry's report, which recommends the purchase of the Presetter 3000 Spraying Machine, which in Australian dollars will cost $500,000. Mrs Lowry charged $10,000 for his report, an expense which Michael can claim on tax. The Presetter 3000 machine is manufactured in Quebec, Canada.

• Michael's next step is to determine if the purchase of the Presetter 3000 machine is financially viable, or whether he should stay with his existing machine, a Dutch machine.

• If Michael buys the Presetter 3000 machine, he will fund it with $250,000 cash he has on hand plus a loan of $250,000 from Westpac. The loan will be at a fixed rate of 6% p.a. over 15 years, with interest only payable at the end of each year. The principal of $250,000 is repayable at the end of the fifth year.

Question 1) The amount paid to Mrs Lynette Lowry for her report that should be included in the NPV calculation of the new machine

Question 2) The loan from Westpac to be included in the NPV calculation is