Question 4 Theoron Corporation is considering replacing its old manufacturing machine with a new machine. Details of existing Old Machine Current Book Value: \$1 million Current Market Value (if sold): $1,250,000 Annual Depreciation: $200,000 Annual Operating Costs (excluding Depreciation Costs): $200,000 Remaining useful life: 5 years Salvage Value (at the end of its useful life): $150,000 Details of New Machine under consideration Cost: $2 million Useful Life: 5 years Annual Depreciation: $300,000 Annual Operating Costs (excluding Depreciation Costs): $75,000 Salvage Value at the end of useful life: $400,000 Theoron Corporation's common shares have a beta of 1.35, and the risk-free rate and market return are 3% and 11% respectively. The before-tax cost of debt for the company is 8%. Theoron Corporation's target capital structure consists of 40% debt and 60% common equity. The applicable corporate tax rate is 30%. (a) What is Theoron Corporation's weighed average cost of capital? (5 marks) (b) Should Theoron Corporation replace its old manufacturing machine with the new one? (Show all appropriate calculations.) (15 marks)