Calculating Project NPV Pilot Plus Pens is deciding when to replace its old machine. The machine’s current salvage value is $2 million. Its current book value is $1 million. If not sold, the old machine will require maintenance costs of $400,000 at the end of the year for the next five years. Depreciation on the old machine is $200,000 per year. At the end of five years, it will have a salvage value of $200,000 and a book value of $0. A replacement machine costs

$3 million now and requires maintenance costs of $500,000 at the end of each year during its costs $5,250 and requires $700 of maintenance every year. Each DET lasts for six years and has a resale value of $600 at the end of its economic life. Gold Star will continue to purchase the model that it chooses today into perpetuity. Gold Star has a 34 percent tax rate. Assume that the maintenance costs occur at year-end. Depreciation is straight-line to zero. Which model should Gold Star buy if the appropriate discount rate is 11 percent? LO.1