Example 1 JJ company wants to replace the old machine. Machine is used in molding the components. The old machine was acquired three year ago. Its remaining useful life is 5 years and salvage value is $10,000. Book value of old machine is $70,000. Old machine cash operating cost is $20,000 per year. A new machine is the speed accelerating machine. Its initial cost is $ 150,000. New machine cash 's operating cost is $12,000 per year. Its useful life is 5 years and salvage value is $40,000. The company use straight line in calculation of depreciation. If the new machine is purchased, the old machine can be sold at $75,000. Tax rate is 30%. Cost of capital is 8%. Present value interest factor for 5 years, at cost of capital 8%. (PVIF8%, s is 0.6806) Present value interest factor for annuity 5 years, at cost of capital 8%. (PVIFA8%, 5 is 3.9927) Required: Should the company replace the old machine by purchasing the new machine or not? (Use NPV for making the decisions) Initial Investment