One year ago, your company purchased a machine used in manufacturing for $95,000.

You have learned that a new machine is available that offers many advantages and you can purchase it for $140,000

today. It will be depreciated on a straight-line basis over 10 years and has no salvage value. You expect that the new machine will produce a gross margin (revenues minus operating expenses other than depreciation) of $35,000

per year for the next 10 years. The current machine is expected to produce a gross margin of $22,000 per year. The current machine is being depreciated on a straight-line basis over a useful life of 11 years, and has no salvage value, so depreciation expense for the current machine is $8,636 per year. The market value today of the current machine is $65,000. Your company's tax rate is 38 % and the opportunity cost of capital for this type of equipment is 11%.

1) The NPV of replacing the year-old machine is $_____ (Please list step by step)

2) Should your company replace its year-old machine?