The Goddards Catering Company (GCC) operates a full-service food center at the Grantley Adams International Airport.On January 2, 2015, GCC purchased a special cookie cutting machine, which has been used for 3 years. GCC is considering purchasing a newer, more efficient machine. If purchased, the new machine would be acquired on January 2, 2018. GCC expects to sell 300,000 cookies in each of the next 5 years. The selling price of each cookie is expected to average $0.50.

GCC has two options: (1) continue to operate the old machine, or (2) sell the old machine and purchase the new machine. The seller of the new machine offered no trade in. The following information has been assembled to help management decide which option is more desirable.

	Old Machine	New Machine
Initial machine investment	$80,000	$120,000
Terminal disposal price at end of useful life assumed for depreciation purposes	$10,000	$20,000
Useful life at date of acquisition	8 years	5 years
Expected annual cash operating costs
Variable cost per cookie	$0.20	$0.14
Total fixed costs	$15,000	$14,000
Depreciation method used for tax purposes	Straight-line	Straight-line
Estimated disposal prices of machines
January 2, 2018	$40,000	$120,000
December 31, 2022	$7,000	$20,000

GCC has a 40% income tax rate.Assume that any gain or loss on the sale of machinery is treated as an ordinary tax item and will affect the taxes paid by GCC in the year in which it occurs. GCC has an after tax required rate of return of 14%.

Required:

Use the present value method to determine whether GCC should retain the old machine or acquire the new machine.