Redo Problem 14.11 with the following additional information.
• The current book value of the old machine is $6,248, and the old asset has been depreciated as a seven-year MACRS property.
• The new asset is also classified as a seven-year MACRS property.
• The company's marginal tax rate is 30%, and the firm uses 10% after-tax MARR.
In Problem 14.11
A special-purpose turnkey stamping machine was purchased four years ago for $20,000. It was estimated at that time that this machine would have a life of 10 years, a salvage value of $3,000, and a removal cost of $1,500. These estimates are still good. The machine has annual operating costs of $2,000. A new machine that is more efficient will reduce the operating costs to $1,000, but it will require an investment of $20,000 plus $1,000 for installation. The life of the new machine is estimated to be 12 years, a salvage of $2,000, and a removal cost of $1,500. An offer of $6,000 has been made for the old machine, and the purchaser is willing to pay for removal of the machine. Find the economic advantage of replacing or of continuing with the present machine. State any assumptions that you make. The firm's interest rate is 12% for any project justification on a before-tax basis.