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 compary 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 piece of equipment. The project imvolves the following: - The new equipment will have a cost of 5600,000 , and it will be depreciated on a straight-fine basis over a period of six years (years 16)+ - 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 ($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 machine has a current salvage value (at year 0 ) of $300,000. - Replacing the old machine will require an investment in net operating working capital (NOWC) of 550,000 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 before interest and taxes (EBIT) will increase by a total of $600,000 in each of the fiext six years (years 16 ). Hint: This value represents the difference between the revenues and operating costs (inctuding depreciatoon expense) generated using the new equipment and that earned using the old equipment. - The project's cost of capital is 13%. - The compariy's annual tax rate is 35%6. 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 replacernent project is: 51,738,910 $1,665,456. 11,231,728 $1,449,092