A firm is replacing a machine that no longer functions. The replacement machine will not impact sales or costs of goods sold, and will not have any salvage value at the end of its five-year life. The firm has a tax rate of 22 percent, uses straight-line depreciation over an asset's life, ignores bonus depreciation options, and has a positive net income. Given this, which one of the following statements is correct?
Multiple Choice
The new machine will create a cash outflow when the firm disposes of the machine at the end of its life.
The new machine will generate positive operating cash flows.
As a project, the new machine has a net present value equal to minus one times the machine's purchase price.
The new machine will have a zero rate of return.
The new machine creates erosion effects.