The Woodruff Corporation purchased a piece of equipment threeyears ago for $230,000. It has an asset depreciation range (ADR)midpoint of eight years. The old equipment can be sold for $90,000.A new piece of equipment can be purchased for $320,000. It also hasan ADR of eight years. Assume the old and new equipment wouldprovide the following operating gains (or losses) over the next sixyears. Question: The firm has a 25 percent tax rate and a 9 percentcost of capital. Should the new equipment be purchased to replacethe old equipment? Explain your answer.
| Ye | New Equipment | OldEquipment Year |
| 1 | $80,000 | $25,000 1 |
| 2 | 76,000 | 16,000 2 |
| 3 | 70,000 | 9,000 3 |
| 4 | 60,000 | 8,000 4 |
| 5 | 50,000 | 6,000 5 |
| 6 | 45,000 | (7,000) 6 |
