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Question content area top Part 1 One year ago, your company purchased a machine used in manufacturing for $ 1 0 8 comma 9 0

Question content area top
Part 1
One year ago, your company purchased a machine used in manufacturing for $108 comma 900. You have learned that a new machine is available that offers many advantages and you can purchase it for $150 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 $45 comma 000 per year for the next 10 years. The current machine is expected to produce a gross margin of $23 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 900 per year. The market value today of the current machine is $65 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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