ABC Company is facing 2 options - they have a decision on whether to Modernize their equipment or to Replace the existing equipment with new machinery. The company expects to make sales of 1,000 units in 2017 this will increase by 100 units each of years 2018 through 2019 For tax the old equipment is fully depreciated and can be sold for $50,000 if the plant is replaced. The company expects its product to sell for $500 per unit The investment will be made at the beginning of 2017 New equipment is depreciated at 50%-25%-25% for years 1 and 2 and 3 The following data is for the two options Modernize Replace Cost 2017 Disposal in 2019 Total annual operating costs /per unit 250,000 40,000 400 350,000 60,000 380 The companies tax rate is 15% The companies required rate of return is 12% Proceeds on disposal above tax cost are taxed at 15% Calculate NPV of both alternatives and suggest a solution