Potriz Inc. is planning a replacement decision. In doing so, the company wants to replace an old machine that was purchased for $65000 two years ago and can now be sold at a market price of 23,000.

The cost of the new machine is $140,000. It will require installation and shipping costs of $2000 and $4000, respectively.

The fax allowable depreciation for the old machine is $13000 per year for a period of 5 years. The useful life of the new machine is three years. For the first two years, the new machine has an annual tax allowable depreciation of $7000. The annual expected operating cash flow (before tax) of the new machine and old machine are $143000 and 12000, respectively.

Furthermore, with the new machine, inventory, account receivables, and payables are expected to increase immediately by $13000, $9000, and $15000, respectively.

The corporate tax rate is 30 percent. The market prices of the new and old machines are expected to be $6600 and $4000, respectively.

1. Compute the NPV of the replacement project, assuming a discount rate of 6% per annum
2. What is the proposed investments IRR?
3. Use the computed IRR and NPV results and discuss the project/accept decision