12. ABC Co. is using a five-year old machine, which was bought for a cost of 129 million. The machine is depreciated over its 12-year original life. The current market price of the machine is *40 million. The salvage value of the machine at the end of its life is estimated to be zero. The company is thinking of replacing this machine by a new machine which will cost *175 million. and would need an installation cost of *25 million. The life of the machine is estimated to be 7 years with a disposal value of *18 million at the end of its life. Because of the greater capacity of the new machine, it is expected that annual sales will increase from 1,800 million to 1,870 million. The operating efficiency is not likely to change. The current operating expenses (excluding depreciation] are 1,080 million. The company expects an additional working capital investment of 25 million if it buys the new machine. The company's cost of capital is 12 per cent. Assume that the company will be allowed to depreciate the cost of machine on diminishing balance basis at 15 per cent for tax purposes. Assume a corporate tax rate of 30 per cent. You may also assume that no tax is paid on sale of asset and it is adjusted for calculating depreciation as per the income tax rules in India. Would you recommend. replacement of the machine? What would be your consideration in arriving at the decision?