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4. Anarysts or a repiacement project At times firms wil need to dedide if they want to continue to use their current equipment or replace the equipment with newer equipment. The company wil need to do replacoment analysis to dotermine which option is the best financial decision for the company. Johnson Co, is considering replacing an existing piece of equipment. The project imvolves the following: - The new equipment wil have a cost of 32,400,000, and it will be depreciated on a straight-line basis over a period of six years (years 16) - The old machine is-also 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 wil have a salvage value of s0 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 reguire an investment in net operating working capital (NoWC) of $50,0oo that will be recovered at the end of the project's life (year 6). - The new machine is more efficent, so the firm's incremental earnings before interest and taces (EBIT) will increase by a total of 3500,000 in each of the next six years (years 16). Hint: This value represents the difference between the revenues and operating costs (induding depreciotion expense) venerated using the new equipment and that eamed using the old equipment. - The project's cost of capital is 13\%. - The company's annual tax rate is 30%6