Chung Inc. is considering purchasing a new piece of equipment that would minimize the amount of human labor needed to operate. The equipment would cost $500,000 and have a useful life of 5 years with a salvage/residual value of $35,000 at that time. This piece of equipment would reduce Chung Inc.s labor force by 2 employees who each currently earn $35,000 per year. The company anticipates minimum wage increase by 10% at the start of the 3rd year. Chung Inc. uses a 10% discount rate in evaluating these types of proposals.

1. Should Chung Inc. purchase this new piece of equipment? Explain all computational steps

2. Suppose the discount rate is raised to 15%

a. Should the company purchase the equipment? Explain all computational steps

b. If they do proceed, what is the maximum value they can pay for the new piece of equipment?