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Integrative: Investment decision Holliday Manufacturing is considering the replacement of an existing machine. The new machine costs $1.25 milion and requires instalation costs of $143,000. The existing machine can be sold currently for $191,000 before taxes. It is 2 years old, cost $802,000 new, and has a $384,960 book value and a remaining useful the of 5 years, it was being depreciated under MACRS using a 5-year recovery period and therefore has the final 4 years of depreciation remaining. If it is held lor 5 more years, the machine's market value at the end of year 5 will be $0. Over its 5 -year llfe, the new machine should reduce operating costs by $348,000 per year. The new machine will be depreciated under MACRS using a 5 -year recovery period. The new machine can be sold for $204,000 net of removal and cleanup costs at the end of five years. An increased investment in net working capilal of $20,000 will be needed to support operations it the new machine is acquired. Assume that the firm has adequate operating income against which to deduct any loss experienced on the sale of the existing machine. The firm has a 9.1% cost of caphal and is subject to a 40% tax rate. a. Develop the net cash flows needed to analyze the proposed replacement. b. Determine the net present value (NPV) of the proposal. c. Determine the internal rate of teturn (IRR) of the proposal. d. Make a recomenendation to accept or reject the replacement propesal, and justify your answer. -. What is the highest cost of capital that the firm could have and soill accept the proposal? Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance (200%) depreciation using the half-year convention