1. (35 pts) It is being decided whether or not to replace an existing piece of equipment with a newer, more productive one that costs, $85,000 and has an estimated MV of 20,000 at the end of its useful life of 5 years. Installation charges for the new equipment will amount to $3,500; this is not added to the capital investment but will be an expensed item during the first year of operation. MACRS (GDS) depreciation (five-year property class) will be used. The new equipment will reduce direct costs (labor, maintenance, rework, etc.) by $10,000 in the first year, and this amount is expected to increase by $600 each year thereafter during its six-year life. It is also that its present fair MV is $14,000. The MV of the old machine will be zero in six years. The effective income tax rate is 40%. 1. (35 pts) It is being decided whether or not to replace an existing piece of equipment with a newer, more productive one that costs, $85,000 and has an estimated MV of 20,000 at the end of its useful life of 5 years. Installation charges for the new equipment will amount to $3,500; this is not added to the capital investment but will be an expensed item during the first year of operation. MACRS (GDS) depreciation (five-year property class) will be used. The new equipment will reduce direct costs (labor, maintenance, rework, etc.) by $10,000 in the first year, and this amount is expected to increase by $600 each year thereafter during its six-year life. It is also that its present fair MV is $14,000. The MV of the old machine will be zero in six years. The effective income tax rate is 40%