A company is considering purchasing a new machine to replace its existing machine. The old machine was purchased 3 years ago for $50,000 and is depreciated using MACRS 3 year schedule (33%, 45%, 15%, and 7%). The old machine can be sold for $7,500 today. The sales revenue with the old machine is $20,000 a year. It is estimated to have a remaining useful life of 3 more years. The old machine can be sold for $2,500 at the end of its useful life. The new machine costs $100,000 and requires $7,000 in shipping and installation costs, and can be sold for $5,000 at the end of three years. The machine is depreciated using the 3 year MACRS depreciation schedule. With the new machine, inventory will initially increase $2,500 and accounts payable will initially increase by $500. 20% of sales must be maintained in net operating working capital for the life of the machine. The new machine would decrease pre-tax operating costs from $18,000 to $12,000 each year. The new machine will generate revenues of $24,000 in the first year, and sales will increase by a rate of 5% each following year. The applicable corporate tax rate is 35%. The firms weighted average cost of capital is calculated using market value weights. The firm is financed through debt and common equity. Its debt consists of 1,000 outstanding bonds that are selling at a price of $1,100. They have a face value of $1,000, an annual coupon rate of 9%, and will mature in eight years. The firm has 50,000 shares outstanding of common stock. The firm just paid a dividend of three dollars, and the dividend is expected to grow at a constant rate of 4% a year. The risk-free rate is 5%, the return on the market portfolio is 14%, and the beta of the firm is 1.4. Should the firm replace the old machine with the new one? Explain.