. Equipment Replacement Concerns. The Molding Department of Hornus, Inc. has been investigating the acquisition of new equipment costing \(\$ 100,000\). Cash savings before income taxes from the use of this equipment are estimated to be \(\$ 40,000\) per year for ten years. At the end of five years, the new equipment must be overhauled at a cost of \(\$ 35,000\). The new equipment will have no salvage value after ten years. The new machine would replace an old machine that would need a \(\$ 30,000\) overhaul now and again in five years, if it is not replaced. The old machine is fully depreciated but can still function. To remove the old machine, environmental precautions (mainly an asbestos problem) will cost the firm \(\$ 40,000\). The rate used in evaluating investments is 10 percent. The income tax rate is 40 percent. Hornus uses straight-line depreciation.

\section*{Required:}

1. Calculate the NPV. Make a recommendation.

2. If the asbestos will need to be removed within two years anyway, how does this impact your answer to Part (1)? Comment.