04. You are the project manager for a construction company and are trying to determine if it is worth it to buy a new excavator to replace the old unit your company has owned for 9 years which they bought slightly used from another company that was going bankrupt at the time. (20 points) The company's Minimum Attractive Rate of Return is 7% above and beyond the rate of inflation. Rate of inflation is 2% now and expected to increase to 2.2% in September. The new full-size CAT excavator you are considering will cost about $550,000 plus tax which will provide 410 horsepower and weights approx. 140,000 Ibs. Delivery and machine orientation will cost another $35,000. Full on-site maintenance service from the vendor for the 1st year will cost $40,000. You expect this machine to provide the following benefits from on- going operations in your projects: Year Benefit 2 110000 34 100000 100000 120000 85000 80000 75000 Salvage value for the old unit is $25,000 as of right now. Your boss does not want you to sell the old unit as it could be used for other smaller jobs in order to expand company capacity. Salvage value for the new unit is estimated to be about $70,000 in seven years. You also know that you can probably rent out this machine to other projects/ companies during your down or idle times when you will not be using it for your own projects; you estimate that you can easily make about $25,000 profit on average every year by renting it out (you probably will make more as there is fierce demand for this type of machine, but have decided to assume a conservative number to be cautious). Should you buy the new unit? What is the PV of this investment? When will you achieve payback of this investment? (##.### format; 3 decimal point accuracy required) What is the Internal Rate of Return? (%%%%% format; 3 decimal point accuracy required) What is the PV, payback time and IRR of this investment if the rental income is $50,000 per year