1.Hayden Inc. has a number of copiers that were bought four years ago for $20,000. Currently, maintenance costs $2000 a year, but the maintenance agreement expires at the end of two years and thereafter the maintenance charge will rise to $8000. The machines will have a current resale value of $8000, but at the end of year 2 their value will have fallen to $3500. By the end of year 6 the machines will be valueless and would be scrapped.

Hayden is considering replacing the copiers with new machines that would do essentially the same job. These machines cost $25000 and the company can take out an eight-year maintenance contract for $1000 a year. The machines will have no value by the end of eight years and will be scrapped.

Both machines are depreciated by using the seven-year MACRS, and the tax-rate is 35%. Assume for simplicity that the inflation rate is zero. The real cost of capital is 7%. When should Hayden replace the copiers?