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One year ago, your company purchased a machine used in manufacturing for $ 1 0 5 comma 6 0 0 . You have learned that

One year ago, your company purchased a machine used in manufacturing for $105 comma 600. You have learned that a new machine is available that offers many advantages and you can purchase it for $170 comma 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 $40 comma 000 per year for the next 10 years. The current machine is expected to produce a gross margin of $22 comma 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 $9 comma 600 per year. The market value today of the current machine is $60 comma 000. Your company's tax rate is 21%, and the opportunity cost of capital for this type of equipment is 11%. Should your company replace its year-old machine?

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