5. The great tech company is considering replacing one of its machines with a more efficient one. The old machine has a book value of $60,000 and a remaining useful life of 5 years. It can sell the old machine now for $ 265,000. The old machine is being depreciated by 120,000 per year straight line. The new machine has a purchase price of $ 1,175,000 an estimated useful life and 5 years MACRS class life and salvage value of $145,000. Annual economic savings is $255,000 if new machine is installed. Taxes 35% and WACC is 12.

a. Calculate the NPV and IRR of the project and make a decision.

b. If expected life of existing machine decreased what effect does this have on the cash flow, discuss only?

c. If R&D were $30,000, what effect on NPV? Discuss only.