Question 5

DEF Inc. is looking to replace an old machine with a new one. The old machine can be sold for $50,000, and its book value is $20,000. The new machine costs $150,000 and will have a 5-year life with no salvage value. The new machine will save $40,000 annually in operating costs. The tax rate is 35%. Calculate:

1. Initial investment after considering the sale of the old machine.
2. Annual after-tax savings.
3. Net Present Value (NPV) if the discount rate is 10%.
4. Internal Rate of Return (IRR).
5. Payback Period.