Hupana Shoe Company is considering replacing a five-year old shoe gluing machine that originally cost $60,000. It was being depreciated using straight-line to an expected salvage value of zero over its original 10-year life and could now be sold for $45,000. The replacement machine would cost $150,000 and have a five-year expected life. It would be depreciated using the MACRS 5-year class life. The actual expected salvage value of this machine after five years is $20,000. The new machine is expected to operate much more efficiently, saving $5,000 per year in energy costs. In addition, it will eliminate one salaried position saving another $44,000 annually. The firm's marginal tax rate is 30% and the WACC is 8.5%.

1. Set up an operating cash flow statement, and calculate the payback, discounted payback, NPV, IRR and MIRR of the replacement project. Should this project be accepted?
2. At what discount rate would you be indifferent between keeping the existing equipment and purchasing the new equipment?