A company is considering the installation of a new machine at a cost of $60000 to replace a machine purchased 7 years ago for $100000. The disposal value of the old machine is $15000. Both machines will have similar outputs and will produce work of identical quality. The estimated yearly costs of operating old machine is $22,000 and that of new machine is $11,000.

Both machines have an estimated remaining life of 3 years, at which time both machines will have a zero estimated disposal value. Assume that:

i) the required rate of return is 10 percent per annum.

ii) the operating costs of the old machine and the new machine are incurred at the end of each year.

(a) Calculate the NPV of the cash flows associated with old machine.

(b) Calculate the NPV of the cash flows associated with new machine.

(c) Should the company purchase the new machine, or continue to operate the old one?