1. A firm could install an improved piece of machinery at cost of $20,000 (has to be paid immediately. In 2022). This machine will save $1,000 every year starting from 2023.

a. Would the firm install the machine if the interest rate is 4%? Explain. (2)

b. Would the firm install the machine if the interest rate is 8%? Explain. (2)

c. At what interest rate is the firm indifferent between install the machine and ignoring this improvement? Explain. (2)