A company is analyzing whether to replace an existing 5-year old machine with a more updated model. Original cost of old machine is $25K and it has a current book value of $12.5K (with a remaining life of 5 years). It can be sold for $15K. New machine will cost $40K. It has five-year life and is depreciated on a straight line basis to a book value of $20K. Revenue will increase $5K while lowering operating costs by $3K for the existing level of output. New machine can be sold at its book value at the end of five years. What is the NPV for this replacement based on a discount rate of 10% and tax rate of 40%? What would the company do?

A. Switch to the new machine because the replacement has a NPV of 6.89K.

B. Switch to the new machine because the replacement has a NPV of 2.76K.

C. Switch to the new machine because the replacement has a NPV of -3.58K.

D. Keep the old machine as the replacement has a NPV of -2.76K.

E. Keep the old machine as the replacement has a NPV of 3.68K.