2. Carbide Chemical Company is considering the replacement of two old machines with a new, more efficient machine. The old machines could be sold for $70,000 in the secondary market. Their depreciated book value is $120,000 with a remaining useful and depreciable life of 8 years. Straight-line depreciation is used on these machines. The new machine can be purchased and installed for $480,000. It has a useful Me of 8 years, at the end of which a salvage value of $40,000 is expected.

The machine falls into the 5-year property class for accelerated cost recovery

(depreciation) purposes. Due to its greater efficiency, the new machine is expected to result in incremental annual savings of $120,000. The company's corporate tax rate is 34 percent, and if a loss occurs in any year on the project it is assumed that the company will receive a tax credit of 34 percent of such loss.