(2) A machine currently in use was originally purchased 2 years ago for $40,000. The machine is being depreciated under straight-line depreciation method and it has three years of usable life remain ing. The current machine can be sold today to net of $42,000. A new machine can be purchased at a price of $140,000 and it has a 3 years usable life, it requires $10,000 to install. The straight-line depreciation method is also used for the new machine. If the new machine was acquired, the investment in accounts receivable would be expected to rise by $10,000, the inventory investment will in- crease by $25,000 and accounts payable will increase by $15,000. Profits before depreciation and taxes are expected to be $70,000 for each of the next 3 years with the old machine and $130,000 for each of the next 3 years with the new machine. At the end of the 3 years, the market price of the old and new machine will equal zero. The company pays taxes at a rate of 40%. The company can raise funds to finance the initial investment via 50% debt and 50% equity. The company's current bond is traded at a price B = 800. It has a face value F 1000 and a coupon rate c = 10%. The bond's maturity is 5 years. The company's current stock is traded at a price P = 100. Its expected dividends is D 10 and divi- dends are expected to grow at a constant rate g = 16.4%. Answer the following questions: (a) Calculate the initial investment associated with the replace- ment of the existing machine by the new one. (b) Determine the incremental operating cash inflows associated with the proposed machine replacement. (c) Compute the terminal cash flow associated the proposed ma- chine replacement. (d) Calculate the cost of debt before and after tax. (e) Calculate the cost of equity. (f) Calculate the WACC. (g) Evaluate whether the company should replace its old machine by the new one using the net present value method. (h) Define what it means by internal rate of return (IRR) and find the IRR of this project