5. The G. Rod Electronic Components Corporation is considering replacing a 10-year old machine that originally cost $37,500, has a current book value of $12,500 with five years of life left, and is being depreciated using the straight line method over its 15 year life with zero salvage value. The replacement machine being considered would cost $100,000 and have a five year expected life over which it would be depreciated using MACRS of 5 year. At the termination of 5 years the new machine is expected to have a salvage value of 35,000. Material efficiencies resulting from the replacement would result in savings of $30,000 per year before tax and depreciation. Currently the old machine could be sold for $17,000. Assume a 34 percent marginal tax rate and required rate of return of 15 percent.

a. Find the NPV of the replacement project.

b. Find the IRR of the replacement project.