6. You are considering replacing the plastic extrusion machine that create basic moldings of the outdoor pool furniture your company produces. The current extrusion machine was purchased two years ago for $240,000 and is being depreciated on the straight line basis over 5 years towards a zero salage value. Although the old machine is anticipated to have a salvage value of $40,000 three years from now, it can be sold today for $150,000. The new machine costs $400,000 and will be depreciated on a straightline basis toward a zero-salvage value over a 5-year period. At the end of three years, you expected to be able to sell it for and $50,000. You have estimated that the more modern form of the furniture will result in sales increasing of $220,000 per year. Manufacturing costs are anticipated to increase $120,000 per year. The firm is in the 40% tax bracket.

a. What are the net of free cash flow for each year?

b. Assume the answer of part a is as follow:

Year 0 Year 1 Year 2 Year 3

Net Cash Flow $(275,000) $115,000 $140,000 110,000

What is the IRR for this project?