1. 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.
   • 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