Pilot Plus Pens is deciding when to replace its old machine. The old machine's current

satvage value is $$3$ mittion. Its current book value is $$2$ miltion. If not sold, the old machine

will require maintenance costs of $$500,000$ at the end of the year for the next five years.

Depreciation on the old machine is $$400,000$ per year. At the end of five years, the old

machine will have a salvage value of $$400,000$ and a book value of $$0.$ A replacement

machine costs $$4$ million now and requires maintenance costs of $$350,000$ at the end of each

year during its economic life of five years. At the end of the five years, the new machine will

have a salvage value of $$1,000,000.$ It will be fully depreciated by the straight$-$line method.

In five years, a replacement machine will cost $$5,000,000.$ Pilot will need to purchase this

machine regardless of what choice it makes today. The corporate tax rate is $28$ percent and

the appropriate discount rate is $10$ percent. The company is assumed to earn sufficient

revenues to generate tax shields from depreciation. Should Pilot Plus Pens replace the old

machine now or at the end of five years? $(6$ Points$).$