QUESTION 5 A company is evaluating the replacement of an old machine with a new one. Last year, the company hired a consultant to conduct a feasibility study about this replacement project, which cost them $1,000,000 at that time. The consulting fees were expensed last year. The old machine was purchased 3 years ago for $4 million and was being depreciated using MACRS 5-year class (20%, 32%, 19.2%, 11.52%, 11.52% and 5.76%). The old machine can be sold for $1 million at this time. If the old machine is not replaced, it can be sold for $500,000 four years from now. The replacement machine has a cost of $3 million, an estimated useful life of 4 years. This machine will be depreciated using straight-line method to 0 salvage value. The replacement machine would permit an output expansion, so sales would rise by $1.5 million per year, even so, the new machine's much greater efficiency would cause operating expenses to decline by $350,000 per year. The new machine would require that inventories to increase by $1 million, accounts receivables to increase by $750,000, accounts payable increase by $400,000 and accrued expenses increase by $300,000. The interest expense on the debt component of the capital required for this project will be $350,000 annually. The new machine can be sold for $125,000 at the end of 4 years to another company. The company's marginal federal-plus-state tax rate is 30%, and its WACC is 12%. What is the CF1 (The cash flow to be used in NPV calculation)? 1,381,760 1,584,320 2,041,840 1,983,720 1,734,540