ABC Company purchased a machine 5 years ago at a cost of Tk. 100,000 with an expected life of 10 10 years at the time of purchase and an expected salvage value of Tk. 10,000 at the end of 10-year period. It is being depreciated by using straight line method. A new machine can be purchased for Tk. 150,000 with an installation cost of Tk. 20,000 and carrying cost of 2% of the base price. Over its 5-year life it will reduce cash operating expenses by Tk. 50,000 per year. Sales are expected to increase by Tk. 12,000 in the first year, afterwards, it is expected to have a 5% increase every year. At the end of its useful life the machine is expected to have a market value of Tk. 15,000. MACRS depreciation will be used considering a 3-year tax life for the machine. If the new machine is purchased, it would require that work-in-process inventories and finished goods inventories be increased by Tk. 2000 and 1000 respectively, but accounts payable would simultaneously increase by Tk. 500. The old machine will be sold today at a price of Tk. 60,000. The firm's tax rate is 40% and the appropriate discount rate for taking such decision is 15%.

I. If the new machine is purchased, what is the amount of initial investment at year O?

Ii. What incremental operating cash flows will occur at the end of years 1 through 5 as a result of replacing the old machine?

iii. What incremental non-operating cash flows will occur at the end of year 5 if the new machine is purchased?

iv. Should the firm replace the old machine with the new one?