12-4 REPLACEMENT ANALYSIS The Oviedo Company is considering the purchase of a new

machine to replace an obsolete one. The machine being used for the operation has a book

value and a market value of zero. However, the machine is in good working order and will

last at least another 10 years. The proposed replacement machine will perform the operation

so much more efficiently that Oviedos engineers estimate that it will produce after-tax

cash flows (labor savings and depreciation) of $8,000 per year. The new machine will cost $45,000 delivered and installed, and its economic life is estimated to be 10 years. It has zero

salvage value. The firms WACC is 10%, and its marginal tax rate is 35%. Should Oviedo

buy the new machine?