Ross Designs is thinking of replacing its seven-year-old knitting machine with a new one that can also emboss designs on cloth. This will allow Ross to sell its textiles, which currently wholesale for $1.20 a yard, for $0.07 a yard more. The embossing should also raise sales 15 percent, to 2.07 million yards annually. The new machine costs $320,000, has annual operating costs of $27,000, and is expected to last for eight years. Labor, materials, and other expenses are estimated to rise by $0.02, to $1.10 per yard. Working capital requirements should remain at 30 percent of sales. All working capital investments will be recaptured in eight years. The current machine was purchased for $190,000 and is being depreciated on a straight line basis assuming a 10year life. Its economic life as of today, however, is estimated to be eight years, the same as that of the new machine. It can be sold for $70,000 today, or for an estimated salvage value of $5,000 in eight years. The new machine will be depreciated straight line over a five-year period, and has an estimated salvage value of $20,000 in eight years. The appropriate discount rate is estimated at 12 percent.