TheReneckeCo. is planning to replace their printing equipment with a new computerized version that will print more copies at lower cost. The cost of the new machine will be $600,000 including installation. The old machine has a book value of $150,000 that is being depreciated straight-line t0 zero value over five years. It can be sold currently for $100,000. The new machine will require net working capital of $80,000 in period 0.

The new equipment is expected to increase sales by $350,000 but costs are also expected to increase by $100,000. At the end of the five-year project, they could sell the equipment for $50,000. Should they replace the printing equipment? Assume the cost of capital is 16% and the tax rate is 35%.

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No, NPV = $120,765.32

No, NPV = -28,375.45

Yes, NPV = $160,655.77

Yes, NPV = $ 126,275.68