The Granger Shipyards is considering the replacement of a riveting machine with a new one that will increase EBDIT (the earnings before depreciation, interest, and tax) from $20,000 per year to $51,000 per year. The new machine will cost $100,000 and have an estimated life of eight years with no salvage value. The old machine has a book value of $40,000 and a remaining life of eight years with no salvage value. If replaced, the old machine can be sold now for $15,000. The Granger's ordinary income tax rate is 40%, the capital gains tax rate is 40%. The company's cost of capital is 12% Note: Use straight line method for depreciation, i.e., Full costs Annual depreciation = Life (Number of years) 1) Calculate the followings (for each one, itemize) a) Initial investment. b) Operating cash flows. c) Terminal cash flows. 2) Draw the timeline of net cash flows. 3) Calculate the NPV of the new machine 4) Is the IRR of the new machine greater than 12%? Why? [Answer the question without calculation of the IRR.) 5) What is your recommendation? Why