Co. (3A) has a machine it bought 4 years ago for $24 million. The machine has a useful life of 16 years. It expects to sell the machine for $200,000 at the end of its useful life. Another Co. - (3M) offers to sell 3A a machine for $30 million with a 12 year useful life. The new machine could be sold for $1 million at the end of its useful life. The new machine would require an initial investment in NWC of $500,000. Sales are expected to increase by $2.5 million per year, while operating expenses are expected to fall by $400,000 per year. The old machine will be sold for $15 million today if the firm buys the new machine. Let the tax rate be 20% and r = 7%. Should 3A replace the machine or not?

Provide step-by-step calculation by hand. No Excel calculation allowed.

Answer = NPV = 5.622MM > 0, replace