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Green Glassfiber Inc. are producing wings for windmills and has a manufacturing machine that needs attention. The company is considering two options. Option A is to refurbish the current machine at a cost of 10,000,000. If refurbished Green Glassfiber expects the machine to last another 8 years with no residual/scrap value left. Option B is to replace the machine at a cost of 20,000,000. A new machine would last 10 years with no residual/scrap value left. Green Glassfiber expects the following net cash inflows from the two options (all in ): Year 2 Option A 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 1,000,000 1,000,000 1,000,000 Option B 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 40,000,000 6 9 10 Total 18,000,000 Green Glassfiber is using straight-line depreciation and requires an annual return on 10%. Required: 1. Compute the NPV and the IRR for the two options. 2. Which option will you recommend Green Glassfiber to use? Why? 3. Assume you recommended Green Glassfiber to buy a new machine (Option B). After 3 years the sales representative returns to Green Glassfiber telling his company a brand new machine for a price of 24,000,000 is about to be released. This machine will raise the net cash inflow with 25% year by year and will have a lifetime of 10 years. The sales representative offer to buy the machine Green Glassfiber bought three years ago for 20,000,000 for a price of 5,000,000. Would you recommend Green Glassfiber to shift to this new machine after having used the old machine for 3 years? Why/why not

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