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5. Daly makes knitting needles. They want to replace a machine in the production process with...

5. Daly makes knitting needles. They want to replace a machine in the production process with a new machine that would speed production. The old machine has 5 years remaining, is fully depreciated, has no salvage value, and generates $2 million in free cash flow per year. The new machine costs $10 million and will be depreciated on a straight line basis over the 5 years. Salvage value is zero. The new machine generates $4.5 million in free cash flow per year. The tax rate is 40%; the required return is 15%. Find net present value.

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