You are the engineering professional in charge of evaluating if it would be best to retrofit or replace an asset. The cash flows for the two options are below:

RETROFIT

YEAR

CapitalInvestment

Revenue

Expenses

Salvage

0

-$20,000

1

$7,000.00

-$500.00

2

$7,000.00

-$400.00

3

$7,000.00

-$300.00

4

$7,000.00

-$200.00

$5,000

REPLACE-

YEAR

CapitalInvestment

Revenue

Expenses

Salvage

0

-$200,000

1

$70,000.00

-$25,000.00

2

$70,000.00

-$25,000.00

3

$70,000.00

-$25,000.00

4

$70,000.00

-$25,000.00

$100,000.00

A - Find the net cashflow for each year for both options.

B - Calculate IRR for each option

C - Find NPV for each option (@10% discount rate) using both NPV and discount formula for each option

D - Which option is best? Why?