The data presented in Table 5.21 depict the replacment decision for an asset. The question is whether to continue to use the old asset or to replace it with a new asset. Assuming a weighted average cost of capital of 6 percent, should the asset be replaced? What if the new asset is a 5-year MARC asset which does not qualify for additional first-year depreciation while the old asset has been completely depreciated out? Assuming a tax rate of 25 percent, does the decision change?

Table 5.21

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Year Old machine New machine Price Repairs Price Repairs 2013 14,268 2,424 23,781 120 2014 13,573 2,626 22,621 240 2015 12,911 2,845 21,518 360 2017 12,281 3,082 20,468 480 2018 11,682 3,338 19,470 600 2019 11,112 3,616 18,520 720