Replacement Analysis HARD

The Gilbert Instrument Corporation is considering replacing the wood steamer it

currently uses to shape guitar sides. The steamer has $6$ years of remaining life. If

kept, the steamer will have depreciation expenses of $$700$ for $5$ years and $$330$

for the sixth year. Its current book value is $$3,830,$ and it can be sold on an

Internet auction site for $$4,420$ at this time. If the old steamer is not replaced, it

can be sold for $$800$ at the end of its useful life.

Gilbert is considering purchasing the Side Steamer $3000,$ a higher$-$end steamer,

which costs $$11,400,$ and has an estimated useful life of $6$ years with an

estimated salvage value of $$1,500.$ This steamer falls into the MACRS $5-$years

class, so the applicable depreciation rates are $20\mathrm{.}00\%,32\mathrm{.}00\%,19\mathrm{.}20\%,11\mathrm{.}52\%,$

$11\mathrm{.}52\%,$ and $5\mathrm{.}76\%.$ The new steamer is faster and allows for an output

expansion, so sales would rise by $$2,000$ per year; the new machine's

greater efficiency would reduce operating expenses by $$1,900$ per year. To

support the greater sales, the new machine would require that inventories

increase by $$2,900,$ but accounts payable would simultaneously increase by

$$700.$ Gilbert's marginal federal$-$plus$-$state tax rate is $25\%,$ and the project cost

of capital is $12\%.$

What is the NPV of the project? Do not round intermediate calculations. Round

your answer to the nearest dollar.

$

Should it replace the old steamer?

The old steamer $\_\_\_\_\_$ be replaced.