Flowton enjoys a steady demand for stainless steel infiltrators used in a number of chemical processes. Revenues from the infiltrator division are $50 million a year and production costs are $47.50 million. However, the 10 high-precision stamping machines that are used in the production process are coming to the end of their useful life. Option A is to replace each existing machine with a new one. These machines would cost $800,000 each and not involve any addition operating costs. Option B is to buy 10 centrally controlled stampers. This will cost $1.25 million each, but compare to Option A, this would produce a total saving in operator and material cost of $500,000 a year. The stampers of option B are sturdily built and would last 10 years, compared with an estimated 7-year life for the stamping machine of option A. The discount rate is assumed to be 15% per annum for options A and B.

a) Compute the cash-flow tables for Options A and B.

b) Calculate the Net Present Values (NPV), Payback periods and the Internal Rate of returns (IRR) for these two options. I need step by step to better understand in getting the answers please.

c) Based on your answers in 1b), explain which options would you recommend to Flowton?

2) Using Flowton as a case study, critically discuss to what extent Net Present Value (NPV) is an effective tool in investment appraisal.