The Virginia Company is considering replacing an assembly fabrication machine with a new design that increases earnings before depreciation from $20,000 to $51,000 per years. The new machine will cost $100,000 and has an expected life of 8 years with no salvage value. The machine is depreciated straight-line to zero balance during its expected life. The applicable corporate tax rate is 40%, and the firm's cost of capital is 12%. The old machine has been fully depreciated and has no salvage value. a) Should it be replaced? (20 marks) b) Assume now that the new machine will have a salvage value of $12,000. Assume further that the old machine has a current book value of $40,000, with a remaining life of 8 years. If it is not replaced, the old machine would have been depreciated in straight-line. If replaced, the old machine is expected to be sold at $15,000. Should the machine be replaced? (10 marks) The Virginia Company is considering replacing an assembly fabrication machine with a new design that increases earnings before depreciation from $20,000 to $51,000 per years. The new machine will cost $100,000 and has an expected life of 8 years with no salvage value. The machine is depreciated straight-line to zero balance during its expected life. The applicable corporate tax rate is 40%, and the firm's cost of capital is 12%. The old machine has been fully depreciated and has no salvage value. a) Should it be replaced? (20 marks) b) Assume now that the new machine will have a salvage value of $12,000. Assume further that the old machine has a current book value of $40,000, with a remaining life of 8 years. If it is not replaced, the old machine would have been depreciated in straight-line. If replaced, the old machine is expected to be sold at $15,000. Should the machine be replaced? (10 marks)