You have the following information about the old machine replacement. Old Machine New Machine Initial cost $200,000 10-year life Annual depreciation = $18,000 Purchased 5 years ago Book Value $110,000 Salvage today $130,000 Salvage in 5 years = $20,000 Initial cost $300,000 5-year life Salvage in 5 years = 0 Cost savings $100,000 per year 3-year MACRS depreciation Required return 10% Tax rate 21% 3-Year MACRS Year 1 2 3 4 MACRS 0.3333 0.4445 0.1481 0.0741 If we buy the new machine, then we will sell the old machine. The old machine use the straight-line depreciation. The new machine use the MACRS depreciation. What are the Pro Forma Income Statements of selling the old machine today instead of in 5 years? 2 Compute the NPV & IRR. 3 Should we replace the old machine with the new machine?