A manufacturing company's equipment has broken down and stopped working. The manager must decide if she should buy new equipment or get the equipment fixed.

The equipment will produce a higher quality product, so it is expected to have annual incremental revenue of $18,000. In addition, the new equipment would operate in a more efficient manner, saving $2,000 in annual operating costs. Below are the facts for this decision:

1. Should the company buy the new equipment or fix the old equipment?

   		1. The company should buy the new equipment.
   		2. The company should fix the old equipment.

2. Calculate the following assuming that the company is only considering the option to buy the new equipment to replace the old equipment. The salvage value of the old equipment is $4,000.

   What is the payback period to buy the new equipment? Enter your answer to two decimal places.

   What is the simple rate of return to buy the new equipment? Enter your answer as a percentage to two decimal places. Do not include the percentage sign.

The incremental annual operating income gained by buying new equipment is $46,000. Assume a discount rate of 6%. 1. Compute an NPV analysis for buying new equipment and fixing old equipment. Round all present values to the nearest dollar. Enter outflows as negative numbers and inflows as positive numbers. Negative numbers should be entered with a negative sign, not brackets. (18 marks - 1 mark per answer)