The Woodruff Corporation purchased a piece of equipment three years ago for $$230,000.$ The

equipment falls into the five$-$year category for MACRS depreciation and can be sold for $$90,000.$

A new piece of equipment can be purchased for $$320,000.$ It also falls into the five$-$year category

for MACRS depreciation. At the end of the project the equipment can be sold for $$40,000.$

Assume the old and new equipment would provide the following operating gains $($or losses$)$

over the next six years:

New Equipment Old Equipment

$1..............$ $$80,000$ $$25,000$

$2..............76,00016,000$

$3..............70,0009,000$

$4..............60,0008,000$

$5..............50,0006,000$

$6..............45,000(7,000)$

The firm has a $25$ percent tax rate and a $9$ percent cost of capital. Should the new equipment

be purchased to replace the old equipment?