2. A farmer is considering making upgrading from a labor-intensive piece of machinery to one that is more capital-intensive. This means that the farmer will need one less worker, but will have to pay for the new piece of equipment. Given the information below using the NPV and IRR methods evaluate the profitability of purchasing the new equipment. Make sure you show your work. (10 Points)

The salary of the replaced worker is $29,000 a year

The new piece of equipment will cost $37,600

The new equipment will increase the machine operating expenses by $23,500 a year

You will receive an $8,000 trade-in for your old equipment

Discount/interest rate = 3%

Annual depreciation will increase by $4,250 a year

Assume there is an 9-year planning horizon

Your tax rate is 20% An after-tax cost of equity capital is 10%

The assumed salvage value of the new equipment is $2,500