8. 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 piece of equipment. The project involves the following: The new equipment will have a cost of $9,000,000, and it will be deprecated on a straight line basis over a period of six years (years The old machine is also being deprecated on a straight-line basis. It has a book value of $200,000 (at year) and four more years of depreciation left(50,000 per year) The new equipment will have a salvage value of 50 at the end of the gr e (rear 6). The old machine has a current salvage value (at year) of $300,000. Replacing the old machine will require an investment in net working capital (WC) of $30,000 that will be recovered at the end of the project's te verb). . The machines more efficient, so the firm's incrementalarning before interest and taxes (EBIT) will increase by a total of $400.000 in each of the next years tears 1-6). Wint: This value represents the difference between the revenues and operating costs including depreciation expense) penerated using the new equipment and that earned using the old gulment The project's cost of capital is 13 The company's annual tax rates Year o Year 1 Year 2 Year 3 Year 4 Year 5 Initial Investment EBIT - Taxes Depreciation + Salvage value - Taxon salvage -NWC Recapture of NWC Total tree cash flow The net present value (NPV) of this replacement project is: 55,871,996 $4,991,197 $4,403,997 $7,046,395