Question $7(1\mathrm{.}5$ points$)$

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$($Time allowance: $39$ minutes$)$ Soft$\_$Water Company is considering replacing its old machine for a new industrial bottling machine. Project is a $10-$year project.This is a one$-$time project: it completely ends at the end of $10$ years. You are asked to find what is the maximum price to pay for the new machine. The following information is provided to you:

$$53$ was paid for the old machine that is to be replaced. It was bought $4$ years ago and as of today there are $6$ years left of its scheduled life remaining. The old machine is being depreciated using straight$-$line depreciation method. The market value of the old machine today is $$17$ and zero at the end of its life $($in $6$ years$).$

$-$The new machine will be fully depreciated on a straight$-$line basis over its $10-$year life. It is estimated that this new machine can be sold at the end of year $10$ for $$4.$

$-$The new machine will not change revenues, but it is expected to generate savings in operating costs in the amount of $$18($before taxes$)$ per year for $10$ years. These savings in costs are at year$-$ end.

$-$The new machine requires additional working capital of $$4.$

The corporate tax rate is $40$ percent.

The firm's required rate of return is $12$ percent.

All cash flows occur at year$-$end. Capital gains and losses are taxed at the corporate rate of $40\%$ when they are realized.

In answering the questions that are answers in dollars, and use$/$round to two decimals, and do not use the dollar $($$$)$ sign. For example if your answer is $$12\mathrm{.}5024$ then enter $12\mathrm{.}50$ ;

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