ayai pix currently uses a six year old molding machine to manufacture silver picture frames. the company paid $115000 for the machine, which was state of the art at the time of purchase. although the machine will likely last another ten years, it will need $8000 overhaul in four years. more important, it does not provide enough capcity to meet customer demand. the company currently produces and sells 15000 frames per year, generating a total contribution margin 112500.

martson molders currently sells a molding machine that will allow ayayai pix to increase production and sales to 20000 frames per year. the machine, which has a ten-year life, sells for 150000 and would cost 14000 per year to operate. ayayai pixs current machine costs only 8000 per year to operate. if ayayai pix purchases the new machine, the old machine could be sold at its book value of 5000. the new machine is expected to have a salvage value of 20000 at the end of its ten-year life