4. Analysis of a replacement project At times firms will noed to decide if they want to continue to use their current equipment or replace the equipment with newer equipment. The company will need to do repiacement analysis to determene which option is the best financial decision for the cornpamy Loltusso Co. is considering replacing an existing piece of equipment. The project involves the following: - The new equipment will have a cost of $2,400,000, and it is oligible for 100% bonus depreciation so it will be fully deprecated ot t=0. - The old machine was purchased before the new tax lew, so it is being depreciated on a straight-tine basis, th has a book value of 5200,000 (ot year 0 ) and four more years of depreciation left ( 550,000 per year). - The new equipment will have a salvage value of 10 at the end of the project's Me (vear 6 ). The old machine hos o current salvage value (at year 0 ) of 5300,000. - Replacing the old machine will require an investment in not operating warking capital (NowC) of 160,000 that will be recovered at the end of the project's life (vear 6 ). - The new machine is more efficient, so the firm's incremental earnings before interest and taxes (EBrT) will increase by a total of \$400,000 in each of the next six wears (years 1-6). Fint: This value represents the difference betweon the revenues and oporating costs (including depreciation expense) generated uning the new equapment and that eamed uaing the old equipment. - The project's cost-of copital is 13%. - The company's anneal 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: $453,2125394,0975334,982$472.916