Question: LMN Inc. is planning to replace old equipment with a new one costing $650,000. The new equipment will have a life of 5 years and

LMN Inc. is planning to replace old equipment with a new one costing $650,000. The new equipment will have a life of 5 years and is expected to bring annual savings of $150,000. The company's required rate of return is 10%. Present value factors are:

Year

PV Factor at 10%

1

0.909

2

0.826

3

0.751

4

0.683

5

0.621

Requirements:

  1. Calculate the total present value of the savings.
  2. Determine the NPV.
  3. Compute the payback period.
  4. Find the IRR.
  5. Evaluate the project's financial justification.

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