Dave & Co. is replacing a machine because it has worn out. At the end of its 5 year life, the new machine will not affect either sales or operating costs and will not have a salvage value. The firm has a 34 percent tax rate, uses straight-line depreciation, and has a positive net income. Given this, which one of the following statements is correct?
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 will generate positive operating cash flows, at least in the first few years of its life.
The new machine will create a cash outflow when the firm disposes of it at the end of its life.
The new machine creates erosion effects.