As a reminder, here are a few items that you will need to consider: Based on the ADR, what MACRS schedule do you use? Was there a gain or a loss? What are the tax implications? What is the next cost of the new equipment? What is the incremental depreciation and tax shield benefits? What are the after tax cost savings? Does the inflows exceed the outflows? Should we do the deal? The Woodruff Corporation purchased a piece of equipment three years ago for $230,000. It has an asset depreciation range (ADR) midpoint of eight years. The old equipment can be sold for $90,000 A new piece of equipment can be purchased for $320,000. It also has an ADR of eight years. Assume the old and new equipment would provide the following operating gains (or losses) over the next six years: Page 417 Year New Equipment Old Equipment ! $80,000 $25.000 2 76,000 16.000 70,000 9.000 4 60,000 8.000 6,000 6 45,000 (7.000) 50,000 The firm has a 25 percent tax rate and a 9 percent cost of capital. Should the new equipment be purchased to replace the old equipment