Canal Company is contemplating the purchase of a new leather sewing machine to replace the existing machine. Theexisting machine was purchased four years ago at an installed cost of $115,000; it was being depreciated underMACRS using a 5-yearrecovery period. The existing machine is expected to have a useful life of 5 more years. Thenew machine costs $203,000and requires$8,000 in installation costs; it has a five-year useable life and would be depreciated under MACRS using 5-year recovery period. Canal can currently sell theexisting machine for $52,000 without incurringany removal or cleanup costs. To support the increased business resulting from purchase of the new machine,accounts receivable would increase by $63,000, inventories by $12,000, and accounts payable by $72,000. At the end of 5 years, the existing machine is expected to have amarket value of zero; thenew machine would be sold to net $66,000after removal and cleanup costs and before taxes. The firm is subject to a33% tax rate and a WACC of 13.36%.The estimated earnings before depreciation, interest, and taxes over the 5 years for both the new and the existing machine are shown: