One year ago, your company purchased a machine used in manufacturing for $105,000.

You have learned that a new machine is available that offers many advantages and you can purchase it for $155,000today.

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 $60,000 per year for the next 10 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

$9,545 per year. The market value today of the current machine is $60,000.

Your company's tax rate is 40 %, and the opportunity cost of capital for this type of equipment is 11%.

Should your company replace its year-old machine?