In Problem 6, suppose that 6 percent inflation in cost savings from labor is expected over the last four years, so that savings in the first year are $20,000, savings in the second year are $21,200, and so forth.
a. If the required rate of return is still 15 percent, what is the net present value of the project? Is it acceptable?
b. If a working capital requirement of $10,000 were required in addition to the cost of the equipment and this additional investment were needed over the life of the project, what would be the effect on net present value? (All other things are the same as in Problem 7, Part (a).)