In 2007, a certain pharmaceutical company has some existing semiautomated production equipment that they are considering replacing. This equipment has a present MV of $60,000 and a BV of $25,000. It has five more years of straight line depreciation available (if kept) of $5,000 per year, at which time its BV would be $0. The estimated MV of the equipment five years from now (in year-zero dollars) is $19,000. The MV rate of increase on this type of equipment has been averaging 3.5% per year. The total operating and maintenance and other related expenses are averaging $27,000 (A$) per year. New automated replacement equipment would be leased. Estimated operating and maintenance and related company expenses for the new equipment are $12,200 per year. The annual leasing cost would be $24,000. The after tax MARR (with an inflation component) is 9% per year (im); t=40%; and the after tax analysis period is five years. Find the incremental IRR of the after tax cash flows (i.e. find delta (defender challenger) IRR)

a. 3.08%

b. 5.14%

c. 4.36%

d. 3.96%

e. 4.96%