C. Gomez, corporate engineer of Allied Products Ltd. is proposing the replacement of existing equipment with more efficient equipment. According to information received by Gomez, the proposed equipment's cost is \(\$ 1,300,000\) and has an expected life of ten years. Data relating to the existing and replacement equipment follow.

a. Assume that the company's cost of capital is 8 percent, which is to be used in discounted cash flow analysis. Compute the net present value of investing in the new equipment. (Ignore tax and round to the nearest whole dollar.)

b. Compute the profitability index (PI) of investing in the new equipment. (Ignore taxes and round PI to two decimal points.)

c. Rounding to the nearest whole percentage, compute the internal rate of return for the equipment investment.

d. Should the company purchase the equipment?

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Original cost. Carrying value Annual cash operating costs Fair value.. Salvage value.... Remaining useful life Existing Equipment $117,600 $ 67,200 $279,000 $ 10,000 0 10 $ Cost... Annual cash operating costs...... Salvage value. Useful life.... Replacement Equipment $1,300,000 $ 60,000 0 10