Problem 5 I will be using a BA II Plus calculator not an excel

The Yonan Equipment Company purchased a machine 5 years ago at a cost of $100,000. The machine had an expected life of 10 years at the time of purchase and an expected salvage value of $10,000 at the end of 10 years. It is being depreciated using the MACRS 5-year class life.

A new machine can be purchased for $150,000, including installation costs. During its 5-year life, it will reduce cash operating expenses by $50,000 per year. Sales are not expected to change. At the end of its useful life, the machine is estimated to be worthless. The new machine is so efficient that inventories are expected to decrease by $2000 while accounts payable decrease by $1000. MACRS depreciation will be used and the machine will be depreciated over a 5 year class life.

The old machine can be sold today for $65,000. The firm's tax rate is 34 percent and the appropriate discount rate is 16 percent. Should Yonan replace the old machine?