Question:

You bought a machine five years ago at a cost of $30,000. The machine is amortized over a 10-year period. The machine s current market value is $10,000. You are offered to replace the machine with a newer one that costs $100,000 and has an expected useful life of 10 years. Both machines offer the same production capacity, but the newer one reduces production costs by $12,000 in each of the first three years and by $20,000 in each of the next seven years. K = 10%, the corporate income tax rate = 50%, and depreciation is applied using the straight-line method.

The bank has granted the company a loan covering the required investment (think carefully what this means!). Should the company swap machine?

Please proper explain and do not copy from Chegg. otherwise I have to report the answer.