3 After Tax Analysis Machine A has been completely overhauled for $9000 and is expected to last another 12 years. The $9000 was treated as an expense for tax purposes last year. Machine A can be sold now for $30,000 net of selling expenses, but will have no salvage value after another 12 years of use. It was bought 9 years ago for $54,000 and has been depreciated since then by straight-line depreciation using a 12-year depreciable life. Because less output is now required, Machine A can be replaced with a smaller machine - B. Machine B costs $42,000, has an expected life of 12 years, and would reduce the operating costs $2500 per year. It would be depreciated by the straight-line approach using a 12-year depreciable life with no salvage value afterwards. - Given income tax rate being 30%, compare the after-tax annual costs and decide whether Machine A should be replaced by Machine B. If needed, use 10% as the interest rate or after-tax rate of return