Designs Co manufactures safety surfacing for children's playgrounds. The main raw material required is rubber particles and these are currently purchased from an outside supplier for USD 5.7 per ton. This price is contractually guaranteed for the next five years. If the contract is terminated within the next three years, Designs Co will be charged an immediate termination penalty of USD 175,000. The directors are considering investing in equipment that would allow Designs Co to manufacture these particles in house by using recycled tires. The machine required to process tires will cost USD 680,000, and it is estimated that at the end of "year 5" the machine will have a second-hand value of USD 87,000. The costs associated with a new venture are as follows: Variable costs (per ton produced) Maintenance costs (per annum) USD 3.7 USD 63,500 All of the above are quoted in current price terms. Inflationary increases are expected as follows: Variable costs (per ton produced) 4% per annum Maintenance costs (per annum) 3% per annum The annual demand of the particles (based on the sales forecasts of the company) is: Year Demand (in tons) Year 1 100,000 Year 2 110,000 Year 3 130,000 Year 4 140,000 Year 5 140,000 Required: 1. Using 17% discount rate, advice Designs Co on the desirability of purchasing the equipment. 2. Calculate IRR and discounted payback period of the project. 3. Calculate the NPV of the proposed investment. 4. Perform sensitivity analysis, when designs Co uses 23% discount rate. Comment on the findings. 5. Offer scenarios for making the investment more attractive for the Diets Co. 6. Comment on the findings