Andiamo Company (AC) is considering a project, which involves purchasing a new machine to replace the existing one to increase the company's productivity. The current machine is being depreciated on a straight-line basis, and its estimated salvage value three years from now is zero. The current machine has a book value of $30,000 and can be sold for $40,000 in the market. The new machine costs 140,000, including installation and transportation, and the company can sell it for an expected market price of $25,000 at the end of the third year of the project.

The new machine falls into a 3-year MACRS class and will be depreciated using the MACRS method. The new machine will reduce operation costs (before taxes) by $70,000 per year without affecting sales. The new machine will require an increase in net operating working capital of $37,500, recovered at the end of year three. ACs marginal tax rate is 40 percent. The company uses a weighted average cost of capital of 16 percent to evaluate this project. Please advise AC to take or reject this project using NPV.

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