Ch 12 met-Can Fatmanandes Back in A la replacement project tomates cecide whether career want. The company widowatic pathetencial decenter the As cambridge of pract. There The old race 200.000 cada (50,200 per There wil vaga the end of the role pearl The eldra has come V. Replacing the old mature will return art in a cerering Co. the end of the new There is no contra mine before it and tactilace by a new 500.000 each of the years. The art the coming Cara nga shared the . The projecte con la Year 2 Years Teuta Years CEIT De T - NC RE Now Test 0-100452 0-102,723 96.439 SA Can Cow Si Q Search this course Ch 12: Assignment - Cash Flow Estimation and Risk Analysis 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 LoRusso Co. is considering replacing an existing piece of equipment. The project involves the following: EP The new equipment will have a cost of $2,400,000, 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 law, so it is being depreciated 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 salvege 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 $45,000 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 $500,000 in each of the next six years (years 1-6), Hint: This value represents the difference between the revenues and operating costs (including depreciation expense) generated using the new equipment and that earned using the old equipment The project's cost of capital is 139. 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. x -599,450 $86,485