Droppitt Parcel Company is considering purchasing new equipment to replace existing equipment that has book value of zero and market value of $15,000.

New equipment costs $90,000 and is expected to provide production savings and increased profits of $20,000 per year for the next 10 years.

New equipment has expected useful life of 10 years, after which its estimated salvage value would be $10,000.

Straight-line depreciation

Effective tax rate: 34%

Cost of capital: 12%

Machinery Replacement Problem: Should Droppitt replace current equipment?

Advise the company using NPV and IRR techniques of capital budgeting.