1)BioFarm Inc. wants to replace its current equipment with new high-tech equipment. The existing equipment was purchased five years ago at a cost of $120,000. At that time, the equipment had an expected life of 10 years, with no expected salvage value. The equipment is being depreciated on a straight-line basis. Currently, the market value of the old equipment is $45,000. The new equipment can be bought for $175,000, including installation. Over its 10-year life, it will reduce operating expenses from $190,000 to $150,000 for the first six years, and from $200,000 to $190,000 for the last four years. Net work- ing capital requirements will also increase by $20,000 at the time of replacement. It is estimated that the company can sell the new equipment for $25,000 at the end of its life. Since the new equipments cash flows are relatively certain, the projects cost of capital is set at 10%, compared with 15% for an average-risk project. The firms maximum acceptable payback period is five years.

(a)Calculate the initial investment amount.

(b) Calculate the projects cash payback period.

(c) Calculate the projects net present value.

(d) State whether or not the company should replace its current equipment with the new high-tech equipment.