One year ago, Caffe Vita Coffee Roasting Co. (CVCRC) purchased three small-batch coffee roasters for $3.3 million. The company-now finds that new roasters are available that offer significant advantages. The new roasters can be purchased for $4.5 million, have an economic life of 10 years, and have no salvage value. It is expected that the new roasters will produce a gross margin of $1.2 million per year, so that, using straight-line depreciation, the annual taxable income will be $750,000. The current roasters are expected to produce a gross profit of $600,000 per year and, assuming a total economic life of 11 years and straight-line depreciation, a profit before tax of $300,000. The cur- rent market value of the old roasters is $1.5 million. CVCRC's tax rate is 45 percent, and its cost of capital after tax is 10 percent. Ignoring possible taxes on sale of used equipment and assuming zero salvage values at the end of the roasters' economic lives, should CVCRC replace its year-old roasters?

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