A company needs to decide whether to replace an old machine with a new one. The new machine costs $12,000 and will save $3,000 annually for 5 years. The old machine can be sold for $2,000 now. The company’s required rate of return is 10%.

Requirements:

1. Calculate the NPV of the replacement decision.
2. Determine the IRR of the replacement decision.
3. Compute the Equivalent Annual Cost (EAC) of the new machine.
4. Make a recommendation based on the NPV and EAC analysis.

A firm is considering expanding its operations with the following cash flows:

• Initial investment: $50,000
• Year 1: $20,000
• Year 2: $25,000
• Year 3: $30,000
• Year 4: $35,000

The cost of capital is 20%.

Requirements:

1. Compute the NPV.
2. Calculate the Payback Period and Discounted Payback Period.
3. Assess the project’s IRR.
4. Discuss the potential impact of inflation on the project’s cash flows.