Complete the following table and compute the incremental cash flows associated with the replacement of the old equipment with the new equipment.

	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6
Initial investment
EBIT
Taxes
Depreciation T
+ Salvage value
Tax on salvage
NOWC
+ Recapture of NOWC
Total free cash flow

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

$1,860,549

$2,232,659

$2,139,631

$1,395,412

-oRusso Co. is considering replacing an existing piece of equipment. The project involves the following: - The new equipment will have a cost of $600,000, 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 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 $50,000 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 $700,000 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 13%. - The company's annual tax rate is 25%