You are evaluating two different machines. The Piton I costs $450,000, has a five-year life that will be depreciated down to zero using the straight-line method. The machine is expected to save the company $125,000 in operating costs (pre-tax) each year it is in operation. Assume the machine can be sold for $25,000 at the end of its useful life.

The Piton II costs $350,000, has a seven-year life that will be depreciated down to zero using straight-line method. Piton II will only save the company $75,000 per year (before taxes) but will have a salvage value of $35,000 at the end of its life. If your tax rate is 23 percent and your discount rate is 9 percent, compute the NPV and IRR for both machines. Which do you prefer? If Piton 1 required an immediate investment of $25,000 of working capital, would your answer change?

Hand written solution please. Not looking for excel