Lou is contemplating the purchase of a new energy efficient sewing equipment which will result in increased activity, energy saving and efficiency. The original purchase price of the equipment (beginning of year 1) is expected to be $200 000 and its expected useful life is 5 years. Lou expects the sewing equipment to generate additional cash sales revenue in year 1 of $100 000, with associated cash expenses of $50 000. The additional sales revenue from and expenses of the sewing equipment are projected to increase by 10 per cent each year. Ignore company income taxes. Lou estimates the required rate of return to be 10%

a. Calculate the net present value for the investment and state (with a justification of your answer) whether it should be accepted. b. Calculate the payback period for the investment and state (with a justification) whether it should be accepted