The Container Corporation of America is considering replacing an automatic painting machine purchased 9 years ago for \($700,000.\) It was depreciated as an asset for manufacturing fabricated metal products as MACRS-GDS 7-year property. It has a market value today of \($40,000.\) The unit costs \($350,000\) annually to operate and maintain. A new unit, also MACRS-GDS 7-year property, can be purchased for \($800,000\) and will have annual O&M costs of \($120,000.\) If the old unit is retained, it will have no salvage value at the end of the 10-year planning horizon. The new unit, if purchased, will have a salvage value of \($100,000\) in 10 years. Use an EUAC measure, a tax rate of 40 percent, and an after-tax MARR of 12 percent to perform an after-tax analysis to see if the automatic painting machine should be replaced if the old automatic painting machine is taken in as a trade-in for its market value of \($40,000.

a. Use the cash flow approach (insider’s viewpoint approach). 

b. Use the opportunity cost approach (outsider’s viewpoint approach). 

c. Use the cash flow approach (insider’s viewpoint approach), except note that a Section 1031 like-kind property exchange is to be used. The equipment replaced will continue to be replaced by like-kind investments in the United States indefinitely.