The company is considering investing in a new $ 8 million machine to replace the existing engine. Now the machine has a book value of $ 16 million and a market value of $ 14.5 million. The new engine is expected to have a life of four years, and the old engine has four years remaining in which it can be used. If the company replaces the old machine with a new one, they hope to save $ 16.7 million in operating costs each year over the next four years. The two machines will have no residual value in four years. If the company buys a new machine, it will also require a $ 1,750,000 investment in net working capital. The required return on investment is 12 percent, and the tax rate is 30 percent. Calculate the NPV and IRR of the decision to replace the old machine?
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