The company X management is analyzing the acquisition of a new production line to replace an existing one. The new equipment costs $400k, with sales $900k per year and a gross margin of 20% of sales. The equipment will depreciate over a period of 4 years and can be sold for $50k at the end of the 4th year. The purchase of this production line requires an initial investment in working capital 60k$; working capital will increase by $5k per year. The existing equipment was purchased a year ago for $200k and has a current market value from 180k$. The machine is being depreciated over a period of 5 years. Like this equipment, sales are estimated at $600k/year and cost of goods sold in 85% of sales. Working capital is estimated at $40k over the years. If the company decides to buy the new machine, the existing machine will be sold. The cost of capital is 15% and the tax rate is 20%.

What is your recommendation to X Management? Maintain existing equipment or buy new equipment?