12 Direct materials 15 Direct labour Share of allocated overhead Old Machine New Machine $40,000 $36,000 7,000 5,000 3 Total Costs 9,000 $56,000 5,000 $46,000 If the new machine is purchased, the old machine will be sold for its current salvage value of $20,000 whereas if the new machine is not purchased, the old machine will be disposed of in 4 years at a predicted salvage value of $2,000. The old machine has a present book value of $40,000. If kept, in one year the old machine will require estimated repairs of $25,000. The firms cost of capital is 10%. Present value factors at 10% are provided below. Year PV of $1 PV of Annuity of $1 1 0.909 0.909 2 0.826 1.736 3 0.751 2.487 4 0.683 3.170 Required: Showing all relevant calculations in good presentation form, should the machine be purchased. Why or why not?