Although the Chen Company%u2019s milling machine is old it is still in relatively good working
order and would last for another 10 years. It is inefficient compared to modern standards
though and so the company is considering replacing it. The new milling machine at a
cost of $110000 delivered and installed would also last for 10 years and would produce
after-tax cash flows (labor savings and depreciation tax savings) of $19000 per year. It
would have zero salvage value at the end of its life. The firm%u2019s WACC is 10% and its
marginal tax rate is 35%. Should Chen buy the new machine?
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