In Problem 1, suppose that 6 percent inflation in savings from labor costs is expected over the last four years, so that savings in the first year are $20,000, savings in the second year are $21,200, and so forth.
a. On the basis of this information, what are the relevant cash flows?
b. If working capital of $ 10,000 were required in addition to the cost of the equipment and this additional investment were needed over the life of the project, what would be the effect on the relevant cash flows? (All other things are the same as in Problem 2, Part (a).)