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The Durst Equipment Company purchased a production machine 5 years ago at a cost of $100,000. This machine had an expected life of 10 years at the time of purchase. It has been depreciated on a simplified straightline basis for 5 years. This results in an annual depreciation expense of $10,000. This machine can be sold today for $65,000. A new machine can be purchased for $150,000 including shipping and installation. It will require modifications costing $15,000. It has a useful life of 5 years. At the end of its 5-year life, it is expected to be worthless. The new machine will be depreciated using an MACRS 3- year recovery period The new machine is expected to have no effect on sales revenues. But it is expected to reduce expenses (mainly labor) by $50,000 per year. The Durst Company has a combined federal and state tax rate of 34%. The company's weighted cost of capital is WACC = 15%. Based on this information, answer the questions below. What is the initial cash flow? B. What are the operating cash flows? What is the terminal cash flow? C. D What is the project's net present value (NPV) and its internal rate of return (IRR)? Should Durst Equipment Company replace the old machine? Why or why not? 11