Replacement Analysis

The Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to shape guitar sides. The steamer has $6$ years of remaining life. If kept, the steamer will have

depreciation expenses of $$550$ for $5$ years and $$310$ for the sixth year. Its current book value is $$3,060,$ and it can be sold on an Internet auction site for $$3,750$ at this time. If the old steamer is not

replaced, it can be sold for $$800$ at the end of its useful life.

Gilbert is considering purchasing the Side Steamer $3000,$ a higher$-$end steamer, which costs $$12,700,$ and has an estimated useful life of $6$ years with an estimated salvage value of $$1,400.$ This

steamer falls into the MACRS $5-$years class, so the applicable depreciation rates are $20\mathrm{.}00\%,32\mathrm{.}00\%,19\mathrm{.}20\%,11\mathrm{.}52\%,11\mathrm{.}52\%,$ and $5\mathrm{.}76\%.$ The new steamer is faster and allows for an output

expansion, so sales would rise by $$2,000$ per year; the new machine's much greater efficiency would reduce operating expenses by $$1,600$ per year. To support the greater sales, the new machine

would require that inventories increase by $$2,900,$ but accounts payable would simultaneously increase by $$700.$ Gilbert's marginal federal$-$plus$-$state tax rate is $25\%,$ and the project cost of capital is

$14\%.$

What is the NPV of the project? Do not round intermediate calculations. Round your answer to the nearest dollar.

$

Should it replace the old steamer?

The old steamer

be replaced.