Problem:
Alex Cook, owner of the Yum Yum Pretzel Company, purchased a pretzel twister, nicknamed the "Alpha," 5 years ago for $300,000. The Alpha produces 400,000 pretzels per year, and the pretzels currently sell for 40 cents each (assume that the variable cost to produce a pretzel is zero). The Alpha is expected to last forever, with an annual maintenance expense of $30,000. Mr. Cook is considering buying a new machine, the "Beta." The Beta costs $500,000 and will also last forever, with an annual maintenance expense of $20,000. The Beta can produce 600,000 pretzels per year, which would also sell for 40 cents each. Mr. Cook figures that he could sell the Alpha today for $40,000. Pretzel twisters are depreciated on a straight-line basis to a zero salvage value over 5 years. The firm pays taxes at a rate of 40%, and uses a discount rate of 10% for project analysis.
Required:
Question: Construct a timeline or table of the relevant cash flows, and compute the NPV of Mr. Cook's replacement decision.
Note: Please explain comprehensively and give step by step solution.