1. Epsilon Electronics is considering the purchase of testing equipment that will cost $420,000 to replace old equipment. Assume the new equipment will generate before-tax savings of $299,000 per year over the four years. The new equipment will result in additonal depreciation of $65,000 per year. If the cost of capital is 17% and the tax rate is 30%, what is the NPV of the project.

3. Grind Co. is considering replacing an existing machine. The new machine is expected to reduce labor costs by $115,000 per year for 5 years. Depreciation on the new machine is $84,000 per year compared with $83,000 on the old machine. In addition, inventory will increase from $250,000 at t=1 to $351,000 at t=2 and remain there until the end of the project. The tax rate is 30%. What is the relevant cash flow in year 2?