Background:

Lighthouse Manufacturing is planning to replace old machinery with new equipment costing $300,000. The new equipment will last for 5 years and generate additional annual cash flows of $80,000. The old machinery can be sold for $20,000 and has a book value of $10,000. The tax rate is 30% and the required rate of return is 12%.

Requirements:

1.Calculate the initial investment net of tax benefits.

2.Calculate the NPV.

3.Calculate the IRR.

4.Determine the Payback Period.

5.Conduct a sensitivity analysis on the cash inflows.