Case 2. Suppose that Intel is considering a new computer-controlled machine for etching trenches in the surfaces of silicon wafers. The company processes these wafers into semicon- ductor chips. The etching machine costs $900,000, and an additional $250,000 would be required for installation. Thus $1,150,000 is the required cash outlay for the investment. Assume the new etching machine would replace an existing machine that was purchased five years ago for $715.000. That machine has five years of useful life remaining. Intel must either keep the old machine or replace it with the new machine. The expected useful life of the new machine is five years. Suppose Intel managers believe that the new machine would save $355,000 per year in cash operating costs. However, annual maintenance cost would be $40,000 higher with the new machine than with the old. Disposal values of the machines are as follows: Now In five years. Old New Machine Machine 5-0- -0- $150,000 Assume Intel has a minimum desired rate of return of 14% on similar investments. Required 1. Is the $715,000 cost of the old machine relevant to the decision of whether to keep or replace the old machine? Why or why not? (Hint: What are the requirements for a cost to be relevant?) 2. Which of the four capital budgeting methods is best suited for making this decision? Use that method to decide which course of action is better for Intel. (Hint: Identify the rele- vant items.)