The Tomak Company purchased a machine three years ago for $160,000.It is being depreciated on a straight-line basis over an eight-year life to a zero salvage value.This particular machine was purchased because the firm anticipated a high level of production that never materialized.The firm is considering selling this machine and purchasing a smaller model.It could sell this machine today for its book value of $100,000.

The smaller model costs $50,000, including installation costs, and would be depreciated on a straight-line basis over a five-year life to a zero salvage value.The smaller model will require more labor to operate and management estimates that labor costs will increase by $15,000 per year.

The firm's income tax rate is 25 percent.Finally, this firm uses a hurdle rate (WACC) of 14 percent to evaluate replacement decisions like this one.Should the firm acquire the smaller machine.Show all work.