One year ago, your company purchased a machine used in manufacturing for

$ 110 000$110 000.

You have learned that a new machine is available that offers many advantages; you can purchase it for

$ 160 000$160 000

today. It will be depreciated on a straight-line basis over ten 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

$ 45 000$45 000

per year for the next ten years. The current machine is expected to produce a gross margin of

$ 25 000$25 000

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

$ 10 000$10 000

per year. The market value today of the current machine is

$ 60 000$60 000.

Your company's tax rate is

42 %42%,

and the opportunity cost of capital for this type of equipment is

11 %11%.

Should your company replace its year-old machine?

WHAT IS THE NPV OF REPLACING THE OLD MACHINE?

One year ago, your company purchased a machine used in manufacturing for $110 000. You have learned that a new machine is available that offers many advantages; you can purchase it for $160 000 today. It will be depreciated on a straight-line basis over ten 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 $45 000 per year for the next ten years. The current machine is expected to produce a gross margin of $25 000 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 $10 000 per year. The market value today of the current machine is $60 000. Your company's tax rate is 42%, and the opportunity cost of capital for this type of equipment is 11%. Should your company replace its year-old machine? The NPV of replacing the year-old machine is $| 1. (Round to the nearest dollar.)