Powdered milk in bread recipe

Yes, you can substitute as already answered, but you can also just leave it out! I've found it makes no noticeable difference.

One thing to add to the answers mentioned before: if you leave the ingredients in a bread machine overnight, then powdered milk is better as it doesn't go sour.

Yes, you can. I use the King Arthur Flour Small Pain de Mie recipe all the time http://www.kingarthurflour.com/recipes/a-smaller-pain-de-mie-recipe, which calls for non-fat powdered milk. An answer to another question here Why is milk powder used in bread machine recipes? says to scald the milk, a concept reiterated by the folks at King Arthur. So as an experiment, I made two loaves of bread, identical in every way except that in one I substituted 170 ml scalded skim milk for the powdered milk and that volume of water.

Right out of the oven and three days later, I can find no difference between the two loaves of bread.

My package of powdered milk calls for 7 ounces of water to 1/3 cup powder to make 1 cup of milk, so I figured 8 tsp powder + 7 Tbs water = 1/2 cup milk. I converted to metric just to make the math easier, but it doesn't seem to me to require that much precision.

Just leave it out - least in those quantities. We make bread in a bread maker with and without it, and anecdotally adding it tends to make for softer, less chewy bread, especially if its a recipe with some sort of fat in it.