You decided to replace your existing machinery and equipment with more efficient ones with newer technology. Your old machinery and equipment was bought 5 years ago, with a price 1,740,000, and economic life of 12 years. It can be sold in the market for 540,000. New machinery & equipment cost 2,450,000, economic life 7 years, 10% will be paid for customs duties, and 175,000 for assembly. Both machinery and equipment groups have no scrap value and depreciated using straight-line method. New machinery & equipment is expected to increase sales by 3,250,000 annually, gross margin is 60% of sales, fixed operating costs stay the same. ACP stays at its original 45 days level, all sales on credit, credit purchases 10% of sales, payment period 60 days, inventory turnover is 6.5 times. Assume 1 year is 360 days.Corporate tax rate is 20%, WACC is 14%. Should the replacement be made?

Use NPV for decision making.