Oak Mountain Organic Coffee, Inc., started as the entrepreneurial effort of two coffee-loving college classmates in Austin, Texas. Today it is a successful, growing international company. The company sold its first bag of fresh-roasted, organic coffee to a small college shop in Austin and now, 15 years later, sells organic coffees, teas and related specialty items in 150 of its own stores located in North America and Western Europe. Oak Mountain competes directly with larger companies such as Starbucks and is seeking future growth opportunities that have been overlooked by its larger competitors. In particular, Oak Mountain is investigating the launch of a major effort in central Europe, where most coffee and tea sales are currently to restaurants and grocery markets. Oak Mountain is planning to replace some of its coffee roasting equipment for equipment with higher capacity that is also more energy efficient. The proposed investment information follows: New equipment cost, including installation and training exist275,000 Disposal/salvage value of new equipment, end of year 5 exist15,000 New equipment useful life 5 years Current disposal value of old equipment exist10,000 Current book value of old equipment exist5000 Annual increase in contribution margin exist35,000 Annual energy cost savings exist50,000 Income tax rate 34% Required rate of return 10% The company uses the straight-line method to depreciate its equipment. The old equipment is fully depreciated. Assume cash flows occur at the end of the year. Required: 1. Calculate the following for the new equipment (show your work): a. Payback period b. Discounted payback period c. Net present value d. Internal rate of return e. Accrual accounting rate of return based on the net initial investment 2. Based on the numbers alone, what would you recommend? Why? 3. What other factors should Oak Mountain consider in deciding whether to purchase the new equipment