PLEASE USE EXCEL AND SHOW THE FORMULA Problem $2[10$ points$]$:

The Sumitomo Chemical Corporation is considering replacing a $5-$year$-$old machine that originally cost

$$50,000$ and can be sold for $$60,000.$ This machine is totally depreciated. The replacement machine

would cost $$125,000$ and have a $5-$year expected life over which it would be depreciated down using the

straight$-$line method and have no salvage value at the end of five years. The new machine would produce

savings before depreciation and taxes of $$45,000$ per year. Assuming a $34$ percent marginal tax rate and

a required return of $10\%,$ calculate:

$($a$)$ The internal rate of return and the net present value $(7$ points$)$

$($b$)$ Assume now that the machine to be replaced is not totally depreciated. This machine presently

has a book value of $$25,000.$ It is currently being depreciated using the straight$-$line method down

to a terminal value of zero over the next five years, generating a depreciation of $$5,000$ per year.

If the rest of the problem's variables do not vary, what is now the net present value of substituting

the machine? $(3$ point$)$