Bens Toy Company currently uses an injection moulding machine that was purchased two years ago. The machine is being depreciated on a straight line basis toward a K5,000,000 salvage value and it has six years of remaining life. Its current book value is K24,000,000 and it can be sold for K30,000,000 at this time.

The company is offered a replacement machine which has a cost of K80,000,000, an estimated useful life of six years and an estimated salvage value of K8,000,000. The new machine would permit an output expansion, so sales would rise by K5,000,000 per year and the machines greater efficiency would cause operating costs to decline by K2,500,000 per year. The new machine would require that inventories be increased by K20,000,000 bur accounts payable would simultaneously increase by K5,000,000.

The companys tax is 35 percent and its cost of capital is 15 percent.

Required:

Use the NPV method to determine whether the company should replace the old machine or not.