Clean Chips is a manufacturer of prototype chips based in? Dublin, Ireland. Next? year, in 2015?, Clean Chips expects to deliver 622 prototype chips at an average price of $ 110000. Clean ?Chips' marketing vice president forecasts growth of 85 prototype chips per year through 2021. That? is, demand will be 622 in 2015?, 707 in 2016?, 792 in 2017?, and so on. The plant cannot produce more than 597 prototype chips annually. To meet future? demand, Clean Chips must either modernize the plant or replace it. The old equipment is fully depreciated and can be sold for $ 4100000 if the plant is replaced. If the plant is? modernized, the costs to modernize it are to be capitalized and depreciated over the useful life of the updated plant. The old equipment is retained as part of the modernize alternative. The following data on the two options are? available:

	Modernize		Replace
Initial investment in 2015	$37,100,000		$62,500,000
Terminal disposal value in 2021	$6,800,000		$15,500,000
Useful life	7 years		7 years
Total annual cash operating cost per prototype chip	$93,000		$85,000

CleanCleanChips uses? straight-line depreciation, assuming zero terminal disposal value. For? simplicity, we assume no change in prices or costs in future years. The investment will be made at the beginning of2015?,and all transactions thereafter occur on the last day of the year.

CleanClean?Chips' required rate of return is6?%.There is no difference between the modernize and replace alternatives in terms of required working capital.

CleanCleanChips has a special waiver on income taxes until2021.

1.	Sketch the cash inflows and outflows of the modernize and replace alternatives over the2015-2021period.
2.	Calculate payback period for the modernize and replace alternatives.
3.	Calculate net present value of the modernize and replace alternatives.
4.	What factors shouldCleanCleanChips consider in choosing between the?alternatives?