1. Clinton Truck Corp. is evaluating whether it should replace a 10-year old equipment. Because this is a replacement type of project, you set out to estimate relevant cash flows assuming the replacement decision is made. What cash flows do you think are valid and relevant in the initial period, i.e. period 0?

I. Purchase cost of a new machine alone

II. Sales price of the old machine alone

III. Potential cost savings from using the new machine

IV. After-tax salvage value from selling the old machine

a. I and III

b. I and II

c. I and IV

d. II and III