investment decision

Hi im working on the problem below

As the finance manager one year ago you made a recommendation to the managing director that the company should purchase an advanced electronic device for £17,000 expecting it to have a productive life of four years and then to have a scrap value of £1,000. It has been depreciated on the usual straight-line method for one year and thus has a book value of £13,000.
You have just found that an even better machine has just come on the market. It would cost £20,000 and, after a three-year productive life, would have a scrap value of £2,000. The attraction is that it would reduce operating costs by £5,000 per annum. There is an obvious problem with the first machine, but the manufacturers of the new machine will give a trade-in allowance of £7,000 for the old one. You have just made a recommendation to the managing director that the old machine should be disposed of now, and a new machine installed.
You get something of a shock when the managing director sends you a rather sharp memo:
“On your recommendation, £17,000 was recently spent on an electronic device. Now you want us to spend a further £20,000 on another machine and to abandon the first before it has hardly been installed. It must be obvious to you that:
1. the cost of the new machine is more than the 3 x £5,000 savings that it will generate in its lifetime

2. you have forgotten that depreciation will rise from £4,000 per annum on the present machine to £6,000 per annum on the new machine, knocking the savings down to a lower figure than you have calculated

3. we will face a big loss of £6,000 on disposal of the present machine since its book value is £13,000 and the trade-in allowance is £7,000.
There is clearly no chance at all of achieving our normal 10% return, even if we forget all taxation effects. Whatever were you thinking about?”

now I worked

The initial cash outlay (ICO). (This is the net cash outflow at t=0).

Price of the machine (20,000.00)
Less Sale of Old Machinery 7,000.00
Year 0 cash flow= (13,000.00)

Depreciation on New Machinery= 6,000.00
Depreciation on Old Machinery= 4,000.00
Incremental Depreciation = New Depreciation-Old depreciation=6000-4000=2000 2,000.00

Net incremental cash flows.

Year 0 Year 1 Year 2 Year 3
Operating Cost savings 5,000.00 5,000.00 7,000.00
Incremental operating cash flow (13,000.00) 5,000.00 5,000.00 7,000.00

The NPV for this investment.

NPV= 936.89

The IRR for this investment.

IRR= 13.82%

Project can be accepted as NPV is positive and IRR is greater than the return on capital required.
im not sure if the above is right as im not including the depreciation,
can some one help in this