Question: You are trying to decide whether to replace a machine on your production line. The new machine will cost $1,000,000, but will be more efficient

You are trying to decide whether to replace a machine on your production line. The new machine will cost $1,000,000, but will be more efficient than the old machine, reducing costs by $400,000 per year. Your old machine is fully depreciated, but you could sell it for $50,000. You would depreciate the new machine using the straight-line depreciation over 5 years schedule to a salvage value of $0. However, you plan to sell it four years from now for $200,000. Your tax rate is 25% and the appropriate discount rate is 10%. What are the NPV and IRR of the project? Should you take the project? Use evidence from the FCF formula to support your answer

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