10. A new haying equipment costing Rs. 60,000 is proposed to reduce labour and material costs for an operation over the next four years. The equipment would be scrapped at the end of four years. Labour and maintenance operating costs with the new equipment are expected to be Rs. 10,000 in year one, Rs. 12,000 in year two, Rs. 14,000 in year three and Rs. 16,000 in year four. The operating costs per year under the existing labour intensive mode of operation are projected to be Rs. 40,000 in year one, Rs. 42,000 in year two, Rs. 44,000 in years three, and Rs. 46,000 in year four. New equipment depreciation is given at the amounts in the table (which are based upon the modified ACRS seven year rates begin- ning in year 0 with the half year convention). The effective income tax rate is 40%. The cost of capital is 20%. Assume that other income exists against which to use all deductions in the year incurred, and that the alternative will provide the same service of producing 1000 large bales per year for each of years 1 through 4.

(a) Evaluate using NPV.

(b) Evaluate using IRR.

(c) Evaluate using annual equivalent cost.