Pinnacle Custom Home Builders purchased a $40$ foot articulating boom lift three years ago for

$$50,000.$ The equipment has been depreciated under the $5-$year MACRS schedule $(20\%,32\%,$

$19\%,12\%,12\%$ & $5\%).$ The old equipment can be sold for $$33,000.$

Pinnacle is considering the purchase of a new $60$ foot articulating boom lift that would allow

the company to complete nearly all of its construction projects without the need for costly rental

lifts. The new lift could be purchased for $$105,000$ and would also fall under the $5-$year MACRS

depreciation schedule.

Assume the old and new equipment would provide the following operating gains $($or losses$)$

over the next six years.

New Equipment Old Equipment

$1..............$ $$40,000$ $$25,000$

$2..............38,00016,000$

$3..............35,0009,000$

$4..............30,0008,000$

$5..............25,0006,000$

$6..............22,5005,000$

The firm has a $28$ percent tax rate and a $7$ percent cost of capital. Should the new equipment

be purchased to replace the old equipment? Briefly justify your answer. Please explain how to find the new lift and old lift depreciation.