Question: Original Machine Initial cost = 100,000 Annual depreciation = 9,000 Purchased 5 years ago Book Value = 55,000 Salvage today = 65,000 Salvage in 5

•Original Machine

–Initial cost = 100,000

–Annual depreciation = 9,000

–Purchased 5 years ago

–Book Value = 55,000

–Salvage today = 65,000

–Salvage in 5 years = 10,000

•New Machine

–Initial cost = 150,000

–5-year life

–Salvage in 5 years = 0

–Cost savings = 50,000 per year

–3-year MACRS depreciation

•Required return = 10%

•Tax rate = 40%

Based on this information calculate the cash flows generated by replacing the old machine with the new one and the IRR and NPV of doing so.

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