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Replacement Analysis The Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to shape guitar sides. The steamer has 6 years of

Replacement Analysis
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 $650 for 5 years and $325 for the sixth year. Its current book value is $3,575, and it can be sold on an
Internet auction site for $4,105 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 $11,900 and has an estimated useful life of 6 years with an
estimated salvage value of $1,600. This steamer falls into the MACRS 5-years class, so the applicable depreciation rates are 20.00%,32.00%,19.20%,
11.52%,11.52%, and 5.76%. The new steamer is faster and allows for an output expansion, so sales would rise by $2,000 per year; the new machine's much
greater efficiency would reduce operating expenses by $1,800 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 is
10%.
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.
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