Hurley's Winery is planning to acquire a new, larger and more efficient grape masher. The new masher will cost $100,000 including shipping and installation and will be depreciated as a seven-year MACRS asset. At the time the masher is purchased, Hurley will have to invest $5,000 in net working capital. Additional investments in net working capital are required at the end of year 1 ($4,000) and year 2 ($2,500). The old masher, which originally cost $60,000, currently has a book value of $12,000. It has 2 years remaining on its 10-year depreciable life and was being depreciated straight-line to zero. It can be sold for $9,000 today. Net revenues attributable to the new masher are expected to total $30,000 in the first year and to grow by 6 percent per year through the end of year 5. After that time, revenues are expected to decline by 5 percent per year. Cash operating expenses are expected to total $10,000 in the first year and to grow at an annual rate of 8 percent. Hurley expects to sell the new masher at the end of Year 7 for $10,000. The marginal tax rate for Hurley is 40 percent for ordinary income and 28 percent for capital gains. Should Hurley replace the old grape masher if its discount rate is 9 percent? 14 percent? Which factors have the most influence on your recommendation?

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