3. Analysis of a replacement project A: times firms will need to decide if they want to continue to use their current equipment or replace the equipment with newer equipment. The comparny will need to do replacement analysis to determine which option is the best financial decision for the company. Jones Co. is considering replacing an existing piece of equipment. The project involves the following: The new equipment vwill have a cost of $2,400,000, and it will be depreciated on a straight-line basis over a period of six years (years 1-6). $50,000 per year). 300,000. The old machine is also being depreciated on a straight-line basis. It has a book value of $200,000 (at year 0) and four more years of depreciation left The new equipment will have a salvage value of $0 at the end of the project's life (year 6). The old machine has a current salvage value (at year 0) of Replacing the old machine will require an investment in net working capital (NWC) of $45,000 that will be recovered at the end of the project's life (year The new machine is more efficient, so the firm's incremental earnings before interest and taxes (EBIT) will increase by a total of $300,000 in each of the next six years (years 1-6), Hint: This value represents the difference between the revenues and operating costs (induding depreciation expense) generated using the new equipment and that earned using the old equipment The project's cost of capital is 13%. The company's annual tax rate is 40%