MT. Martin Inc, a NJ based construction firm is evaluating whether to replace an aging backhoe with a new model. For the old backhoe next year, maintenance will cost $1,500, and these costs will double each year. The old backhoe could be sold today for $4,000, but resale value will decline 50% each year. A new model costs $12,000, lasts for 5 years and costs $900/year to maintain. After 5 years the new model could be sold for $1,500. If r=12%, and we ignore taxes, should IR replace the old backhoe? If so, when should it do it?