2. A corporation is considering purchasing a machine that has an 8year life and will save the rm $4,500 per year in net operating costs. The machine would be depreciated on a straight-line basis to a zero salvage value. The rm has a 34% tax rate and a 12% pa. required rate of return on this project. 2.21 If the machine costs $25,000, What is its NPV and payback period? 2.b If the machine can be leased for $4,000 per year payable at the end of each year, should the rm buy the machine or lease it? 3. Cement Inc. is considering an investment opportunity that requires an initial outlay equal to $575,000. In years 1 and 2 the net cash flows are expected to equal $500,000. The required rate of return is 25% pa. Given that the Cement lnc.'s criterion whether to invest or not is the project's internal rate of return (IRR), should the firm's managers invest in this project? Is the IRR criterion the correct decision rule in this case? 4 Gadgets, Inc. needs to allocate this year's capital expenditure budget to either construction of a new retail outlet or investment in product enhance- ment. The marketing department has prepared estimates of the predicted increase in sales resulting from each project. The required investment for each project is known and will be depreciated over ve years. The required rate of return for both projects is identical to the rm's cost of capital of 15%. Their tax rate is 34%. New Retail Outlet Year 0 1 2 3 4 5 Investment $1,300.00 Revenue $2,000.00 $2,100.00 $2,205.00 $2,315.25 $2,431.01 Expenses $1,100.00 $1,155.00 $1,212.75 $1,273.39 $1,337.06 Product Enhancement Year 0 1 2 3 4 5 Investment $1,200.00 Revenue $1,500.00 $1,575.00 $1,653.75 $1,736.44 $1,823.26 Expenses $800.00 $840.00 $882.00 $926.10 $972.41 (All figures in thousands) 4.21 Calculate net cash ows for each project 4.b Calculate the NPV of each project. Which project should you choose