Galveston shipyards is considering the replacement of an eight year old riveting machine with a new one that will increase earnings before depreciation and
taxes from $27000 to $54000 per year. The new machine will cost $82500 and it will have an estimated life of eight years and no salvage value. The new
machine will be depreciated over its 5 years MACRS recovery period ( year1 20% 2 32% 3 19% 4 12% 5 11% 6 6%) THe firms marginal tax rate is 40% and the
firms required rate of return is 12%. The old machine has been fully depreciated and has no salvage value. Should the old riveting machine be replaced by the
new one? Show all work for full rating.