3. One of your bank's clients is considering replacing one of its main pieces of equipment with either of two new models - A or B. Model A is a highly automated, computer-controlled and built with modern materials; model B is a less expensive lathe that uses standard technology and materials. Your client has requested an analysis of the alternatives and has prepared estimates of the initial investment and incremental (relevant) cash inflows associated with each model. These are shown in the following table. Model A Model Be Initial investmente 660,000 360,000 Year 14 128,000 88,000 2 182,000 120,000 34 166,000 96,000 4 168,000 86,000 5 450,000 207,000 Note that the analysis covers a 5-year period. At the end of that time, the models would be sold, thus accounting for the large fifth-year cash inflows. The bank's analysts believe that the two models are equally risky and that the acceptance of either of them will not change the firm's overall risk. The analysts decide to apply the firm's 13% cost of capital when analysing the models. The firm requires all projects to have a maximum payback period of 4.0 years. (a) Calculate the payback period of each model. (2 Marks) (b) Assuming equal risk, calculate the following values of each model: (Hints: use the 'Linear Interpolation' method to find IRR)