Serrano Company is evaluating a proposal to purchase a new machine that would cost $50,000 and have a salvage value of $6,000 in 5 years. The new machine will provide savings of $7,000 in operating costs when compared to that of the existing machine (which has operating costs of $27,000). If Serrano purchases the new machine, it will sell the old one for its current salvage value of $7,000. If Serrano does not purchase the new machine, it will dispose of the old machine in 5 years at an estimated value of $2,000. The old machine's present book value is $25,000. The old machine will require repairs estimated at $20,000 in one year. Manifests cost of capital is 12 percent.

What should Serrano do? You must support your answer.