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A machine now in use has a book value of $1,800. it can be sold for 2,600 and can be used for three more years if necessary. At the end of the three years, it would have no salvage value.

A new machine to replace the one in current use can be purchased for an invoice price of 12,500, Freight in costs will amount to $800 and install costs would be $500. Because of the manufacturing technology, the new machine has an estimated useful like of only 3 years and will have no salvage value. if the new machine is purchased, estimated direct cash savings are $8000 for the first year and $6000 for each of the next two years. The firms tax rate is 40% and the tax rate applicable to gains or losses on the sale of capital equipment is 30%. straight-line depreciation is used on the current machine and will be used on the new one(if it is purchased) the firms cost of capital is 10%

A on the basis of the above assumptions, calculate the IRR and NPV for this investment (replacement) 

Assume now that the prospective salvage value of the new machine at the end of the three year period is $1800. All other assumptions remain as in (A) above. What happened to the NPV and the IRR? Do they go up or down? explain why.

Assume now that an additional 2,000 must be invested in tools to maintain the new machine over its three year life. The 2,000 will be invested at the beginning of year 1 when the machine is purchased but will be recovered at the end of the three year period. What happens to the NPV AND IRR? will they go up or down? explain why?

Now assume that the company will take advantage of accelerated depreciation methods available instead of straight line depreciation. if all other assumptions remain the same as (a) above, what will happen the the IRR ans NPV? will they go up or down? explain why?