Assume that it is January 1, 2022, and that the Mendoza Company is considering the replacement of a machine that has been used for the past 3 years in a special project for the company. This project is expected to continue for an additional 5 years (i.e., until the end of 2026). Mendoza will either keep the existing machine for another 5 years (8 years total) or replace the existing machine now with a new model that has a 5-year estimated life. Pertinent facts regarding this decision are as follows: Purchase price of machine (including transportation, setup charges, etc.) Useful life (determined at time of acquisition) Estimated salvage value, end of 2026* Expected cash operating costs, per year: Variable (per unit produced/sold) Fixed costs (total) Estimated salvage (terminal) values: January 1, 2022 Keep Existing Machine Purchase New Machine $ 160,000 $ 200,000 8 years 5 years $ 26,000 $ 21,000 $ 0.35 $ 26,000 $ 0.29 $ 25,000 $ 69,000 December 31, 2026 $ 13,500 Net working capital committed at time of acquisition of existing machine (all fully recovered at end of project, December 31, 2026) $ 31,000 Incremental net working capital required if new machine is purchased on January 1, 2022 (all fully recovered at end of project, December 31, 2026) Expected annual volume of output/sales (in units), over the period 2022 to 2026 *Note: These amounts are used for depreciation calculations. $ 24,000 510,000 $ 11,000 510,000 Assume further that Mendoza is subject to a 40% income tax, for both ordinary income and gains/losses associated with disposal of machinery, and that all cash flows occur at the end of the year, except for the initial investment. Assume that straight-line depreciation is used for tax purposes and that any tax associated with the disposal of machinery occurs at the same time as the related transaction.