Perma$-$Filter Co$.$ is a manufacturer of high$-$performance automotive oil filters. The firm is considering replacing an old assembly machine with a new one. The old machine was purchased five years ago for $$3$ million. It is currently being depreciated to a zero net book value using the straight$-$line depreciation method over a $10-$year life. It can be sold today for $$1\mathrm{.}75$ million. It has a useful remaining life of $10$ more years. After another $10$ years of use, the salvage value would be zero.$$

A new, more efficient machine costs $$5\mathrm{.}1$ million today. It machine will require total installation costs of $$600,000,$ of which $$400,000$ must be capitalized with the rest to be expensed immediately. The new machine will also be depreciated using the straight$-$line method over $10$ years to a net book value of $$350,000.$ It will last for $10$ years. At the end of $10$ years, the firm expects to sell it for $$300,000.$ Removal and cleanup costs are expected to be $$150,000.$

If the replacement is made, an additional investment of $$40,000$ in inventories will be required due to the new manufacturing technology. The purchase of this inventory will create accounts payable of $$25,000.$ The additional investment in net working capital will be recovered at the end of $10$ years. Although the new machine is not expected to increase sales, its use will result in a reduction of annual cash operating expenses by $$1\mathrm{.}2$ million. The firm's tax rate is $40\%,$ and no investment tax credit is currently available for this machine.$$

Compute the incremental cash flows if the old machine is replaced by the new one today. This project has a cost of capital of $12\%.$ Compute the project$$s NPV$.$