Taylor Corporation currently uses an injection-moulding machine that was purchased 2 years ago. The CCA rate on

Question:

Taylor currently uses an injection-moulding machine that was purchased 2 years ago. The CCA rate on this machine is 30%. Currently, it can be sold for $2,500. If this old machine is not replaced, it is not expected to have any value at the end of its useful life, estimated to be 6 years from now.
Taylor is offered a replacement machine that has a cost of $8,000, an estimated useful life of 6 years, and an estimated of $800. The CCA rate on this machine is also 30%. The replacement machine would permit an output expansion, so sales would rise by $1,000 per year; also, the new machine's much greater efficiency would reduce operating expenses by $1,500 per year. The new machine would require that inventories be increased by $2,000, but would simultaneously increase by $500. Taylor's tax rate is 30% and its WACC is 15%. Should the company replace the old machine? Salvage Value
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