Determination of Cash Flows. The NCC maker of a famous electronic component, is considering replacing one of its current assembly machines with a new fully automated machine. This replacement would mean the elimination of one employee, generating salary and benefit savings.

Keep:

One full-time machine operator - salary and benefits (per year)	20,405
Cost of maintenance - per year	1,000
Cost of defects	10,000
Original depreciable value of old Machine	100,000
Annual depreciation - per year	10,000
Expected life - years	10
Age - years old	5
Expected salvage value in 5 years	0
Current salvage value	25,000
Tax rate -	30%

Replace:

Cost of new machine	120,000
Installation fee	5,000
Transportation charge	3,000
Cost of maintenance - per year	4,000
Costs of defects per year	1,000
Expected life - years	5
Salvage value	20,000
Depreciation method by straight-line

Required:

(a) Given the following information, determine the cash flows associated with this replacement.

(b) Assume an after-tax cost of capital of 10 percent, compute: (i) Payback period, (ii) Internal rate of return

(ii) Net present value. Should the new machine be bought?