One year ago, your company purchased a machine used in manufacturing for $110,000. You have since learned that a new machine is available that offers many advantages, and you can purchase it for $150,000 today. It will be depreciated on a straight-line basis over 10 years and has no salvage value. You also expect that the new machine will produce a gross margin (revenues minus operating expenses other than depreciation) of $40,000 per year for the next 10 years. The current machine is expected to produce a gross margin of $20,000 per year. The current machine is being depreciated on a straight-line basis over a useful life of 11 years and has no salvage value. The market value today of the current machine is $50,000. Your company's tax rate is 45%, and the opportunity cost of capital for this type of equipment is 10%. To evaluate the merits of this switch, you have also just paid $25,000 to a consultant for an independent report.

Required:

Assuming we purchase the new machine today and sell the old one,

1. what would be the incremental net cash flows at t₀ (i.e., today)?
2. what would be next years incremental operating cash flows (OCF)?
3. would this decision create value? Please discuss in one or two sentences.
4. should we include the consultant fee in our analysis? Please discuss why or why not.