The Riley Corporation is considering whether or not to introduce a modified version of one of its products,

Newones. The product would replace an existing product, Oldones. The product line has an estimated life

of four years, regardless of which product the firm sells. The following information has been collected to

help in making this decision.

$$ Sales of Newones is expected to be $$165,000$ per year in each of the next four years;

manufacturing expenses will be $$57,000$ per year. For Oldones, expected sales would be $$80,000$

per year and manufacturing expenses would be $$35,000$ per year.

$$ Advertising and marketing expenses of $$15,000$ per year in each of the next four years would be

expected if Oldones were produced. If Newones were introduced, an initial $($year $0)$ outlay of

$$18,000$ for advertising and promotion would be required in addition to annual expenditures of

$$25,000$ per year for the next four years. A marketing study costing $$15,000$ was used to

determine expected sales of Newones last year.

$$ The machinery that would be used to produce Oldones originally cost $$140,000.$ It currently has

a book value of $$100,000.$ Annual depreciation of $$20,000$ will be charged if the machine is kept.

The old machine could be sold now for $$80,000$ or sold after four years for $$5,000.$

$$ To produce Newones, a new machine costing $$200,000$ would be required. The new machine

would be depreciated on a straight$-$line basis to zero salvage value over its expected economic

life of five years. However, the machine would be sold for an estimated $$50,000$ after four years.

$$ The firm$$s marginal tax rate is $30\%$; the firm$$s cost of capital is $15\%.$

Should the firm replace Oldones with Newones? Show your work.