A company has decided to buy a machine for $50,000. It will depreciate the machine on a straight-line basis over its useful life of five years. The tax rate of the company is 40% and the proper discount rate 10%. The following tables gives the resale value, S of the machine and its pretax revenue, E. The company has the option to keep or sell the machine at any time. What is the optimal time to replace the machine?

Time, years Pretax revenue, E Resale value, S 0 SO $50,000 1 $22.000 $38,000 2 $18,000 $27,000 3 $14,000 $17,000 4 $12,000 $8,000 5 $10,000 SO