AINEISTO F Sierra Ltd is planning to replace one of its production lines, which has a remaining useful life of 10 years, book value of 9 million, a current disposal value of 5 million, and a negligible terminal disposal value 10 years from now. The average investment in working capital is 6 million. Sierra plans to replace the production line with a computer-integrated manufacturing (CIM) system at a cost of 40 million. The production manager estimates the following annual cash-flow effects of implementing CIM: Cost of maintaining software programs and CIM equipment, 1,5 million. Reduction in rent payments due to reduced floor-space requirements, 1,0 million. Fewer product defects and reduced rework, 4,5 million. In addition, Sierra estimates the average investment in working capital will decrease to 2 million. The esti- mated disposal value of the CIM equipment is 14 million at the end of 10 years. Sierra uses a required rate of return of 12%. Required: F11: Calculate the net present value of the CIM proposal. F12: Management is uncertain of the amount of the annual net cost savings. Calculate the minimum annual net cost savings that will cause Sierra to invest in CIM on the basis of the net present value criterion.") 1) Annual net cost savings = Reduction of rent payments + Fewer defects and reduced rework - Cost of maintaining software programs and CIM equipment. AINEISTO G Deer Ltd uses a 12% discount rate for project appraisal. It is considering purchasing a machine which, when it comes to the end of its economic life, is expected to be replaced by an identical machine and so on, contin- uously. The machine has maximum life of three years but, as its productivity declines with age, it could be replaced after just one or two years. The relevant cash flows are as follows (): Year Outlay Revenues Costs Scrap value if sold Required: 0 1.000.000 1 2 3 + 900.000 400.000 + 650.000 + 800.000 - 350.000 + 400.000 + 700.000 - 350.000 + 150.000 G13: Calculate the equivalent annual cash flow (EAC) if the machine is replaced after 3 years. G14: Calculate the equivalent annual cash flow (EAC) of the optimal replacement cycle.