Wilshire Company is considering the replace an old machine with a new one. The original cost of the old machine was $30,000 with 10 years useful life. The machine is now 5 years old and has a current market value of $10,000. The machine is being depreciated over a 10-year life using straight line method toward a zero-salvage value. The purchase price of new machine is $23,000 with 5-year useful life and salvage value of $8,000. The shipping cost is $500, installation cost of $1,500, and it cost $1,000 to train an employee to operate the machine. Expected increase in revenue and operating cost from the new machine are $6,000 and $2,000 respectively. The new machine requires additional working capital of $1,000. Depreciation is computed using MACRS over a 5-year life, the cost of capital is 10%, and tax rate of 34%. Answer the following questions.

a. Calculate the initial investment of the replacement decision.

b. Calculate the change in depreciation.

c. Calculate the change in net annual cash flows.

d.Calculate the terminal Value.

e.Calculate the NPV of the replacement decision.

f.Should Wilson replace the old machine with the new one?