BUSINESS 000- A lathe for trimming molded plastic was purchased 10 years ago at $6000

A lathe for trimming molded plastic was purchased 10 years ago at $6000.The machine had a useful life of 15 years at the time it was purchased and originally estimated and still believe that at the end of the 15 years the salvage value will be zero.The machine is being depreciated in a straight line bases.The R & D manager reports that a new special purpose can be purchased at $9600 (including freight and installation) and over its 5 year life it will reduce labor and raw material sufficiently to cut the operating cost from $5600 to $3200.This reduction will cause before tax profit to rise by $2200.It is estimated that the new machine can be sold at$1600 at the end of the 5 years the current market price of the old machine is $800 .Net working capital will increase by $800 at the time of replacement. The firms cost of capital is 11.5% and corporate tax is 40%.Required.should the replacement be done ,clearly show the your workings.

 

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