4. Analysis of a replacement project At times firms will need 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 replacement analysis to determine which option is the best financial decision for the company Price Co. is considering replacing an existing place of equipment. The project involves the following: The new equipment will have a cost of 89,000,000, and eligible for 100% bonus depreciation so it will be fully deprecated at to The old machine was purchased before the new tax law, so it is being deprecated on a straight-line basis. It has a book value of $200,000 (at year o) and four more years of depreciation ieft ($50,000 per year) The new equipment will have a salvage value of $0 at the end of the project's ite (Year 6). The old machine has a current salvage value (at year of $300,000, Replacing the old machine will require an investment in net operating working capital (NOWC) of $50,000 that will be recovered at the end of the project's life (year 6). . The new machine is more efficient, so the firm's incremental earnings tpfore interest and taxes (EDIT) will increase by a total of 5300,000 in each of the next six years (years 1-6). Hint: This value represents the difference between the revenues and operating costs (including depreciation experie) generated using the new equipment and that earned using the old equipment. The project's cost of capital is 134 The company'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 Complete the following table and compute the incremental cash flows associated with the replacement of the old equipment with the new equipment. Year o Year 1 Year 2 Year 3 Year 4 Year 5 Initial Investment EBIT - Taves Depreciation *T Salvage value - Tax on Salvage NOWC Recapture of NOW Total free cashow The represent value (NPV) of the replacement project is 35.638,76 -$4,792,909 56.766,459