You are trying to decide whether to replace a machine on your production line. The new machine will cost $1 million, but will be more efficient than the old machine, reducing costs by $500,000 per year. Your old machine is fully depreciated, but you could sell it for $10,000. You would depreciate the new machine over a 5-year life using MACRS. The new machine can be sold at the book value at the end of the 5th year. The new machine will not change your working capital needs. Your tax rate is 35% and your cost of capital is 10% MACRS 5 year Depreciation Table is: Year 1 2 3 4 5 6 Depreciation rate .2000 .3200 .1920 .1152 .1152 .0576 Should you replace the machine?