Custom Cycles is looking at purchasing a new piece of equipment that would allow them to automate part of their production process now done manually. The equipment will cost $200,000 and would have a useful life of 10 years. At the end of year five, the equipment would require a $10,000 upgrade to replace major components. The equipment is expected to have a salvage value of $18,000 at the end of year ten. Excluding depreciation, the new machine will have operating costs of $28,000 per year. The company uses straight-line depreciation for all production equipment. The cost of doing the work manually that the new machine will be able to do completely is $68,000 per year. Custom Cycles requires a 12% return on all investments in equipment.

Required:
Ignore income taxes.
1. What net annual cash inflows will be provided by the new equipment?
2. Compute the new equipment's net present value. Use the incremental cost approach, and round all dollar amounts to the nearest whole dollar.
3. What is the internal rate of return on the new equipment?