ABC is looking to purchase a new machine for a 3 year project, that will cost $770,000 and replace the old machine that they were using.

The old machine was being depreciated but has been fully depreciated

The original cost of the old machine was $500,000, and it can be sold for $90,000.

The new machine's depreciation schedule and salvage value are listed below.

The new machine will result in annual cost savings of $225,000.

The new machine cannot make one of the company's old products so as a result they will lose $10,000 a year

in pre-tax profits. The project requires $10,000 in working capital that will be recapatured at the end of the project.

The new machine will result in annual cost savings of $225,000. Should they go forward with the change?

Depreciation MACRS - NEW	33.33%, 44.45%, 14.81%, 7.41%
Purchase Price New	$ 770,000
Purchase Price, Old	$ 500,000
WACC	7.50%
Tax rate	25.00%
Salvage Value (New)	$ 200,000
Salvage Value (Old)	$ 90,000
Working Capital Req	$ 10,000
Lost Pretax Profits	$ 10,000
Cost Savings (Annual)	$ 225,000