Eco Media Limited is a medium$-$sized firm specializing in print and digital marketing. It is privately owned and has a client base that is spread across Europe. It specializes in high quality advertising and corporate communication brochures with an average print run of more than $50,000$ units. However, lately, there has been a number of issues with Eco$$s production owing to obsolete and malfunctioning machinery. The management of Eco has been planning to replace its aging machinery with better machinery for some time. It has identified two options that can be used to achieve the required quantity, quality, and features. It is expected that the new machinery will reduce the printing cost and improve the quality, putting the firm in a more competitive position. The accountant of Eco has collected following key financial information to aid in the decision$-$making. The existing machine was purchased three years ago and had a total installation cost of $1,200,000.$ It is being depreciated under MACRS, using a five$-$year recovery period. As of now, this print machine has an economic life of five years. In the current market, this machine can be sold for $400,000$ before taxes. However, if it is retained and used for the remaining five years, it can be sold for $150,000$ before taxes. Maxi Print$$Option $1$This is a highly automated state of the art machine that has advanced features. This machine can be purchased for $2,200,000$ and will require an additional $200,000$ for installation. It will be depreciated under MACRS using a five$-$year recovery period. At the end of five years, the machine can be sold for $1,100,000$ before taxes. It is expected that acquiring this machine will cause the following changes in Eco$$s working capital.

Midi Print$$Option $2$This option is less sophisticated than the Maxi Print model. It will cost $1,300,000$ and require $80,000$ in installation. It will be depreciated under MACRS using a five$-$year recovery period. At the end of the five years, this machine can be sold for $600,000$ net before tax. Acquiring this machine will not have any impact on the working capital situation of the firm. The accounts team have prepared the expected earnings before depreciation, interest, and taxes with the old press, Maxi Print, and Midi Print for each of the five years. These estimates are summarized in the following table. The firm is subject to a $30\%$ tax rate, the cost of capital, r$,$ applicable for the proposed replacement is $12\%.$