Canal Company is contemplating the purchase of a new leather sewing machine to replace the existing machine.

The existing machine was purchased four years ago at an installed cost of $$115,000$; it was being depreciated

under MACRS using a $5-$year recovery period. The existing machine is expected to have a useful life of $5$ more

years. The new machine costs $$203,000$ and requires $$8,000$ in installation costs; it has a five$-$year useable life

and would be depreciated under MACRS using $5-$year recovery period. Canal can currently sell the existing

machine for $$52,000$ without incurring any removal or cleanup costs. To support the increased business

resulting from the purchase of the new machine, accounts receivable would increase by $$63,000,$ inventories by

$$12,000,$ and accounts payable by $$72,000.$ At the end of $5$ years, the existing machine is expected to have a

market value of zero; the new machine would be sold to net $$66,000$ after removal and cleanup costs and

before taxes. The firm is subject to a $33\%$ tax rate and a WACC of $13\mathrm{.}36\%.$ The estimated earnings before

depreciation, interest, and taxes over the $5$ years for both the new and the existing machine are shown in the

table on the next page.Earnings before interest, taxes, depreciation and amortization

Year New Machine Existing Machine

$1$ $$75,000$ $$36,000$

$2$ $$75,000$ $$33,000$

$3$ $$75,000$ $$30,000$

$4$ $$75,000$ $$27,000$

$5$ $$75,000$ $$24,000$