Sweeney Industries is deciding whether to automate one phase of its production process. The manufacturing equipment has a six-year life and will cost $910,000. Projected net cash inflows are as follows:

Year 1. . . . . . . . . $262,000

Year 2. . . . . . . . . $252,000

Year 3. . . . . . . . . $228,000

Year 4. . . . . . . . . $211,000

Year 5. . . . . . . . . $201,000

Year 6. . . . . . . . . $176,000

1.

Compute this project's NPV using Sweeney Industries' 16% hurdle rate. Should the company invest in the equipment? Why or why not?

2.

Sweeney Industries could refurbish the equipment at the end of six years for $102,000. The refurbished equipment could be used one more year, providing $76,000 of net cash inflows in Year 7. In addition, the refurbished equipment would have a $54,000 residual value at the end of Year 7. Should Sweeney Industries invest in the equipment and refurbish it after six years? Why or whynot? (Hint: In addition to your answer to Requirement 1, discount the additional cash outflow and inflows back to the present value.)