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Brooklyn Corporation has a used machine with a current book value of $ 1 . 2 million that it can sell today for $ 2

Brooklyn Corporation has a used machine with a current book value of $1.2 million that it can sell today for $2.0 million. It can keep the machine for eight more years, but the annual maintenance costs will be $920,000 next year and increase at a 3% annual rate. Yearly depreciation for income tax purposes will be $150,000($1.2 million /8 years). The machine's expected selling price at the end of eight years is $120,000.A replacement machine is available at a cost of $5.2 million. It will last for eight years, have annual maintenance costs of $400,000 next year, increasing at a 3% annual rate, and an expected residual value of $500,000. Brooklyn will use straight-line depreciation over eight years to a $0.4 million residual value on its tax return.At the end of eight years, Brooklyn will have to replace either machine at a cost of $8 million.Brooklyn's averagecombined (federal and state) income tax rate is 25%, its marginal combined income tax rate is 30% and its required rate of return is 15.36%. The company has sufficient income to benefit from depreciation tax shields.
Using Net Present Value analysis, should Brooklyn replace the used machine today?

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