a four year old machine A is scheduled to be replaced by Machine B

machine A machine B

Book Value (remaining life, 4years) 90,000

Market Value 100,000

Immediate repairs required on to maintain

as operating condition 16,000

Estimated cost 220,000

Economic life 4 years

Annual income 250,000 300,000

Out-of-pocket operating costs 195,000 203,000

Working capital requirement 30,000 39,500

Income tax rate is 35% and cost of capital 15%

requirement compute for the following:

1. net investment
2. incremental cash return
3. payback period for the replacement
4. internal rate of return (replacement)