1. You own a coffee shop and are trying to decide whether to invest in a machine that makes, in one step, soy grand gluten-free, nut-free cinnamon lattes with medium foam (and, of course, no hydrogenated palm oil). It costs $4,000 if purchased today, is expected to last four years, and will generate net cash flows of $1,200 for each of the four years. Assume that the cash inflows occur at the end of each year.

A) If the discount rate is 10%, what is the net present value of this investment? Show your work.

B) Does the decline in the discount rate cause a change in the quantity demanded of the coffee machine or a change in demand? Briefly explain.

C) What is the relation between Net Present Value (NPV) and economic profit? Explain in three sentences or fewer.