Xtreme Builders is evaluating the acquisition of a new concrete mixer. The details are as follows:

• Cost of Mixer: CAD 150,000
• Expected Life: 4 years
• Residual Value: CAD 20,000
• Depreciation Method: Units of Production
• Cost of Capital: 10%

The expected cash flows and usage are:

• Year 1: 30,000 hours, Cash Flow CAD 40,000
• Year 2: 25,000 hours, Cash Flow CAD 50,000
• Year 3: 20,000 hours, Cash Flow CAD 60,000
• Year 4: 15,000 hours, Cash Flow CAD 70,000

Requirements:

a. Define incremental cash flows and provide examples. b. Differentiate between the payback period and the discounted payback period. c. Based on the above data:

• Calculate the payback period.
• Compute the discounted payback period.
• Determine the NPV and provide an investment recommendation.