5. AB Company is considering replacement of its old machine with a new, more cost-saving one. Information related to the old and new machines follows:

| Original cost---old machine | $60,000 |
| --- | --- |
| Book value---old machine | $50,000 |
| Current market value---old machine | $42,000 |
| Annual operating cost---old machine | $14,000 |
| Purchase price---new machine | $75,000 |
| Installation cost---new machine | $2,000 |
| Annual operating cost---new machine | $6,000 |

The old machine had been purchased a year ago. AB estimates that either machine has a remaining useful life of 5 years. At the end of 5 years, either machine would have a salvage value of zero.

Ignore the effect of income taxes and the time value of money.

Required:

(1) Should AB purchase the new machine? Show your calculations. (10%)