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P 2-13 Assume an automated welder was purchased one year ago by a corporation for $700,000. Today, it is announced that a welder with the same output capabilities can be purchased for $500,000. The newest welder will save the firm $80,000 per year in production costs compared to the welder purchased last year. Each machine has an estimated useful life of five years and will be used 2,000 hours per year. The maintenance contract with the vendor will remain at $20,000 per 1,000 hour of use, regardless of whether the newer machine is purchased. The one-year old machine can be sold for $100,000 today. Required: Answer each question below. Assume that each question is independent of the others. a. Assume that the applicable discount rate is 8%. Ignore income tax considerations. Should the one-year old machine be replaced? b. Repeat the analysis assuming a corporate income tax rate of 20% and a discount rate of 14%. Assume the older welder will be sold in one year for $80,000 after claiming CCA at the end of the first year of $20,000. P 2-14 Danson Metal Salvage Lid. wants to salvage scrap metal from an old industrial site for the next two years. It then plans to clean up the site and return the land to useable condition. The current owners will sell the land to Danson for $100,000 at the end of the two years if it has been suitably reclaimed. It is estimated that the land can be sold to a developer thereafter by Danson for $150,000, but it will take two more years to do this. The purchase and sale of the land will be considered normal operating income for tax purposes. Danson's income tax rate is 40%. A $2 million insurance policy also needs to be purchased by Danson for the two-year project. The cost of purchasing insurance coverage is estimated at $200,000, payable at the start of the project. The company's discount rate is 16%