Problem 9-17 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 and you can purchase it for $150,000 today. It will be depreciated on a straightline basis over 10 years and has no salvage valve. You expect that the new machine will produce a gross margin (revenues minus operating expenses other than depreciation) of $40,000 per year for the next 10 years. The current machine is expected to produce a gross margin of $20,000 per year. The current machine is being depreciated on a straight-line basis over a useful life of ll years, and has no salvage valve, 50 depreciation expense for the current machine is $10,000 per year. The market value today of the current machine is $50,000. Your company's tax rate is 25%, and the opportunity cost of capital for this type of equipment is 10%. Should your company replace its year- old machine? New machine cost (year 0) ($150,000) Current machine purchase price $110,000 Current machine depreciation $10,000 per year Current machine book value $100,000 Current machine market value $50,000 New machine depreciation $15,000 per year Old EBITDA $20,000 per year New EBITDA $40,000 per year Tax rate 25% Cost of capital 10% Life of machines 10 years Capital gain from old machine sale Year O incremental free cash flow Incremental EBITDA Incremental depreciation Annual benefit of replacement Net Present Valve of replacement