Analysis of a replacement project times firms will need to decide if they want to continue to use their current equipment or Feplace the equipment with newer equipment. 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 picce of equipment. The project involves the following: - The new equipment will have a cost of $1,800,000, and it will be depreciated on a straight-line 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 5200,000 (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 oid machine has a current salvage value (at vear 0 ) of 5300,000 . - Replacing the oid 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 6 ). - The nes machine is mare efhcient, so the firm's incremental earnings before interest and taxes (EaIT) will increase by a total of $500,000 in each of the next tix vears (years 1-6). Hint: This value regresents the difference between the revenues and operating costs (inctuding depreciation expense) generated uaing the new equigment and that eamed using the old equipment. - The project's cost of cepital is 13%. - The compony's annuar tax rate is 35\%. Complete the following table and compute the incremental cash flows associated with the replacement of the old equipment with the new equipment. value - Tax on salvage - Nwe + Recapture of Nwic Total free cash flow The net present value (NPV) of this replacement project is: 492,231 581,380 3108.507 1130,209