Question: Davis Inc. is considering buying a new machine for $5 million. This would replace an old machine that they had bought five years ago for

Davis Inc. is considering buying a new machine for $5 million. This would replace an old machine that they had bought five years ago for $4 million. The old machine was being depreciated using the straight line method and had a 10 year useful life when it was first purchased. They could not sell it at this point since the old machine technology is obsolete. If Davis decides to buy the new machine and replace the old one, what is the change in capital expenditure for the investment? Note this is just asking what is the initial cash flow for this investment, and they are replacing the old machine with a new one. Davis tax rate is 25%.

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