A firm is considering to replace its existing machine which has 4 years left in which it can be used. The investment in a new machine is estimated at $17 million. The current machine has a book value of $6 million and a market value of $3.5 million. The new machine is expected to have a 4-year-life. If the firm replaces the existing machine with the new machine, it expects to save $5.7 million in operating costs each year over the next 4 years. Both machines will have no salvage value in four years. If the firm purchases the new machine, it also will need an investment of $250,000 in net working capital. Their capital contains 50 bonds outstanding that are selling at their par value of $1,000 each. Bonds with similar characteristics are yielding a pretax 5.6 percent. The firm also has 5,000 shares of common stock outstanding. The stock has a beta of 1.2 and sells for $40 per share. The U.S. T-bill is yielding 4 percent, the market risk premium is 7 percent and the tax rate is 21 percent. The company uses straight-line depreciation