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The Woodruff Corporation purchased a piece of equipment three years ago for $230,000. It has an asset depreciation range(ADR) midpoint of 8 years. The old equipment can be sold for $90,000.

A new piece of equipment can be purchased for$320,000. It also has an ADR of 8 years. Assume the old and new equipment would provide the following operating gains (or losses) over the next 6 years. Year NewEquipment OldEquipment

1 $80,000 $25,000

2 $76,000 $16,000

3 $70,000 $9,000

4 $60,000 $8,000

5 $50,000 $6,000

6 $45,000 ($7,000)

The firm has a 36 percent tax rate and a 9 percent cost of capital. Should the new equipment be purchased to replace the old?