at times firms, we need to decide if they want to continue to use their current equipment replace the equipment with newer equipment. The company will need to do replacement analysis determine which option is the best financial decision for the company.

Low Rosso Co. Is considering replacing an existing piece of equipment. The project involves the following:

the part that is cut off is: Total free cash flow.

Part 2 (pls help)

The net present value (NPV) of the replacement project is:

A) $88,194

B) $76,690

C) $57, 518

D) $92,028

12: Assignment - Cash Flow Estimation and Risk Analysis - The new equipment will have a cost of $1,800,000, and it is eligible for 100% bonus depreciation so it will be fully depreciated at t=0. - The old machine was purchased before the new tax taw, so it is being depreciated on a straight-line bosis, It has a book value of $200,000 (at year 0 ) and four more years of depreciation lett ( $50,000 per year). - The new equipment will have a salvage value of 50 at the end of the project's lfe (year 6 ). The old machine has a current salvage value (at year 0) of $300,000. - Aleplacing the old machine will require an investment in net operating working capital (NowC) of $20,000 that will be recovered at the end of the project's le (year 6). - The new machine is more efficent, so the firm's incremental earnings before interest and takes (EBIT) wal increase by a total of $400,000 in each of the next six years (years 1-6). hint: This value represents the cifference between the revenues and operating costs (including depreciation expense) generated using the new equipment and that eamed using the old equipment. - The project's cost of capnal is 13%. - The company's annual tax rate is 25%. Complete the following tabin and compute the incremental cach flows associated with the replacement of the old equipment with the new equipment