Question: The Taylor Corporation is using a machine that originally cost $66,000.The machine has a book value of $66,000 and a current market value of $40,000.

The Taylor Corporation is using a machine that originally cost $66,000.The machine has a book value of $66,000 and a current market value of $40,000. The asset is in the Class 5 CCA pool that allows 35% depreciation per year. It will have no salvage value after 5 years and the company tax rate is 40 percent.

Jacques Detaille, the Chief Financial Officer of Taylor, is considering replacing this machine with a newer model costing $70,000.The new machine will cut operating costs by $10,000 each year for the next five years, and will have a salvage value in year five of $5,000.

Taylor Corporation's cost of capital is 8 percent.

Should the firm replace the asset?What is your advice to Jacques? Use NPV methodology to solve this problem.

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