Max is planning to buy an equipment. Model X cost $300 to purchases and result is a costing savings of $150 per year, and last for 5 years. Model Z cost $450, result in costs savings of $130 per year, and last for 10 years. The discount rate is 20%.

Required:

a. Calculate the appropriate NPV for both the models. 0.5 mark

b. Calculate the approximate IRR for both the models. 0.5 mark

c. Calculate the Payback period for both the models. 0.5 mark

d. Which model should Max buy. 0.5 mark

e. If the inflation rate is expected to be 10%, will your advice to Max change. 1 mark