You are trying to decide whether to replace a machine on your production line. The new machine will cost

$1 million, but will be more efficient than the old machine, reducing costs by $500,000 per year. Your old machine is fully depreciated, but you could sell it for $50,000. You would depreciate the new machine over a five-year life using MACRS. The new machine will not change your working capital needs. Your tax rate is 25%, and your cost of capital is 9%. Should you replace the machine?