Deriving net present value of cash flows for a decision to dispose of an asset. Suppose that yesterday Black & Decker Company purchased and installed a made-toorder machine tool for fabricating parts for small appliances. The machine cost

$100,000. Today, Square D Company offers a machine tool that will do exactly the same work but costs only $50,000. Assume that the discount rate is 12 percent, that both machines will last for five years, that Black & Decker will depreciate both machines on a straight-line basis with no salvage value for tax purposes, that the income tax rate is and will continue to be 40 percent, and that Black & Decker earns sufficient income that it can use any loss from disposing of or depreciating the "old" machine to offset other taxable income. How much, at a minimum, must the "old" machine fetch on resale at this time to make purchasing the new machine worthwhile?

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