1. A new operating system for an existing machine is expected to cost $520,000 and have a useful life of six years. The system yields an incremental after-tax income of $245,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $20,200.
2. A machine costs $400,000, has a $31,400 salvage value, is expected to last eight years, and will generate an after-tax income of $88,000 per year after straight-line depreciation.