Pilot Plus Pens is considering when to replace its old machine. The replacement costs $3 million now and requires maintenance costs of $500,000 at the end of each year during the economic life of five years. Assume that depreciation of $3 million capital investment is subject to the income tax rules and the company would charge depreciation expense at the rate of 50 percent, 30 percent and 20 percent in the 1st year, 2nd year and 3rd year respectively from the date of the installation of the machine. At the end of five years the new machine is expected to have a salvage value of $500,000. The corporate tax rate is 34 percent. The appropriate discount rate for the company is 12 percent. Information about maintenance cost, salvage value, depreciation, and book value of the existing old machine is given below:

Year	Maintenance	Salvage	Depreciation	Book Value (End of year)
0		$2,000,000		$1,000,000
1	$200,000	1,200,000	$200,000	800,0000
2	500,000	800,000	200,000	600,000
3	1,500,000	600,000	200,000	400,000
4	1,500,000	400,000	200,000	200,000

The company is assumed to earn sufficient revenues to obtain tax advantages from depreciation and other non-cash expenses, if any. Neither of the machines would affect production level and so revenues for the company. Required: When should the company replace the machine?