Cost of new machine Old machine book value Old machine market value Years of operation Saved operating costs Net working capital Required return Tax rate *Depreciation straight-line \begin{tabular}{rr} $ & 10,900,000 \\ $ & 3,800,000 \\ $ & 2,800,000 \\ & 4 \\ $ & 4,400,000 \\ $ & 250,000 \\ 10% \\ 21% \end{tabular} Keep old machine Initial cash outlay: Purchase new machine Net working capital Sell (buy) old machine Taxes on old machine Total Incremental cash flows Operating expense Depreciation EBT Taxes Net income OCF Incremental analysis NPV IRR