A company is considering replacing a machine purchased 3 years ago

cost $14,000, with a new machine, which costs $20,000. Old machinery is depreciated on a straight-line basis with

$2,000 a year and can be sold today for $4,000, though

will have no market value at the end of the project.

The new machine will be depreciated during its 3-year life according to MACRS at the rates of 33%, 45% and 15% and

can be sold at the end of the third year for $10,000. This location is expected to bring an increase in profit before tax

of 10,000S in the first year, a value which will increase by 20% in the second and third year. One is expected from the replacement

decrease in receivables of $2,000 and a decrease in current liabilities of $2,400. The tax rate is

10% and cost of capital 12%. Should the machinery be replaced according to the NPV method?