A company is evaluating the replacement of an old machine with a new one. Last year, the company hired a consultant to conduct a feasibility study about this replacement project, which cost them $500,000 at that time. The consulting fees were expensed last year.

The old machine was purchased 2 years ago for $3 million and was being depreciated using MACRS 5-year class (20%, 32%, 19.2%, 11.52%, 11.52% and 5.76%). The old machine can be sold for $1 million at this time. If the old machine is not replaced, it can be sold for $400,000 four years from now. The replacement machine has a cost of $2 million, an estimated useful life of 4 years. This machine will be depreciated using straight-line method to 0 salvage value.

The replacement machine would permit an output expansion, so sales would rise by $1 million per year; even so, the new machines much greater efficiency would cause operating expenses to decline by $250,000 per year. The new machine would require that inventories be increased by $1 million, but accounts payable and accrued expenses would simultaneously increase by $500,000 and 200,000 respectively. The interest expense on the debt component of the capital required for this project will be $250,000 annually. The new machine can be sold for $50,000 at the end of 4 years to another company. The companys marginal federal-plus-state tax rate is 40%, and its WACC is 12%.

What is the initial investment CF0? (I know how to do this first part)

What is the CF1 (The cash flow to be used in NPV calculation)?

What is the CF4 (The cash flow to be used in NPV calculation)?

What is the NPV of the project?