Replacement Analysis The Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to shape...

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Replacement Analysis
The Gilbert Instrument Corporation is considering replacing thewood steamer it currently uses to shape guitar sides. The steamerhas 6 years of remaining life. If kept, the steamer will havedepreciation expenses of $400 for 6 years. Its current book valueis $2,400, and it can be sold on an Internet auction site for$4,500 at this time. Thus, the annual depreciation expense is$2,400/6=$400 per year. If the old steamer is not replaced, it canbe sold for $800 at the end of its useful life.
Gilbert is considering purchasing the Side Steamer3000, a higher-end steamer, which costs $8,200, and has anestimated useful life of 6 years with an estimated salvage value of$900. This steamer falls into the MACRS 5-years class, so theapplicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%,11.52%, and 5.76%. The new steamer is faster and allows for anoutput expansion, so sales would rise by $2,000 per year; the newmachine's much greater efficiency would reduce operating expensesby $1,600 per year. To support the greater sales, the new machinewould require that inventories increase by $2,900, but accountspayable would simultaneously increase by $700. Gilbert's marginalfederal-plus-state tax rate is 40%, and the project cost of capitalis 15%. Should it replace the old steamer?
The old steamer _________ be replaced.

What is the NPV of the project? Do not round intermediatecalculations. Round your answer to the nearest dollar.
$

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Replacement AnalysisThe Gilbert Instrument Corporation is considering replacing thewood steamer it currently uses to shape guitar sides. The steamerhas 6 years of remaining life. If kept, the steamer will havedepreciation expenses of $400 for 6 years. Its current book valueis $2,400, and it can be sold on an Internet auction site for$4,500 at this time. Thus, the annual depreciation expense is$2,400/6=$400 per year. If the old steamer is not replaced, it canbe sold for $800 at the end of its useful life.Gilbert is considering purchasing the Side Steamer3000, a higher-end steamer, which costs $8,200, and has anestimated useful life of 6 years with an estimated salvage value of$900. This steamer falls into the MACRS 5-years class, so theapplicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%,11.52%, and 5.76%. The new steamer is faster and allows for anoutput expansion, so sales would rise by $2,000 per year; the newmachine's much greater efficiency would reduce operating expensesby $1,600 per year. To support the greater sales, the new machinewould require that inventories increase by $2,900, but accountspayable would simultaneously increase by $700. Gilbert's marginalfederal-plus-state tax rate is 40%, and the project cost of capitalis 15%. Should it replace the old steamer?The old steamer _________________ be replaced.What is the NPV of the project? Do not round intermediatecalculations. Round your answer to the nearest dollar.$ ________