1. Analysis of a replacement project At times furms will need to decide if they want to contamue to use their current equipment or replace the equipment with newer equipment. The compary will need to do replacement analyses to determine which option is thet best financial decision for the company. Price Co0, is considering replitaing an existing piece of equipment. The project involves the following: - The new equipment will have a cost of $2,400,000, and it is eligible for 100% bonus depreciation so it will be fully deprecated at t=0. - The old machine was purchased before the new tax law, so it is being depreciated on a straight line basas. It has a book value of $200,000 (at year 0 ) and four more years of deprecation left ($50,000 per year). - The new equipment will have a salvage value of $0 at the end of the project's life (year 6 ). The old ruachine has a curtent salvage value (ot year 0 ) of $300,000. - Replocing the old machine will require an investroent in net operating workang capatal (NowC) of $45,000 that will be tecavered at the end of the project's lile (year 6 ). - The new machine is more efficent, so the firm's incremental earnings before interest and taxes (EBrT) will increase by at total of $600,000 in each of the next six vears (years 1-6). Hint: This value represents the difference between the revenues and operating costs (insluding depreciatan expense) gener ated using the new equprient and that earned using the old equipment. - The project's cost of capiat is 13%. - The compary's annual tax rate is 25%. Complete the following table and compute the incremental cash flows associated with the replacement of the old equipment with the new equipment. The net present value (NPV) of this replacement project is: $181,331 $255,997 $159,998 $213,331