=+One of the machines that the Desk Division uses to manufacture the desks is rather old, and the manager must decide whether to replace it. The new machine would cost $36000 and would last 6 years. It would have no salvage value. The old machine is fully depreciated and has no trade-in value. Lamb Ltd uses straight-line depreciation for all assets. The new machine, being new and more efficient, would save the company $8500 per year in cash operating costs. The only difference between cash flow and net income is depreciation. Lamb Ltd’s weighted-average cost of capital is 9%. Lamb Ltd is not subject to any income taxes.

Required 1 Should Lamb Ltd replace the machine? Why or why not?