Delafono is evaluating the option of replacing an old pasta-making machine that is expected not to last more than two years. During that time, the machine is expected to generate inflow of R20,000 per year. It could be replaced by a new machine at a cost of R150,000. The new machine is more efficient than the current one and as a result it is expected to generate a net cash flow of R75000 per year for three years. The management of Delafono is wondering whether to replace the old machine now or wait another year. Delafono's cost of capital is 10%

1. Assume that the current resale value of the old machine is zero and that the new machine will also have a zero value in the future. What is the annual equivalent cash flow of using the new machine?
2. What should management of Delafono do?