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Jones Co. is considering replacing an existing piece of equipment. The project involves the following: - The new equipment will have a cost of $1,800,000, and it will be depreciated on a straight-line basis over a period of six years {years 1-6). - 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 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 working capital (NWC) of $30,000 that will be recovered at the end of the project's life [year 6). - The new machine is more efcient, so the firm's incremental earnings before interest and taxes {ESIT) will increase by a total of $400,000 in each of the next six years [years 1-6). Hint: This value represents the difference between the revenues and operang 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 30%. 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 IE Initial investment I:I EBlT If If If 0400.000 -Taxes v v v v v v + New depreciation I v v I I v v I I v v - Old depreciation I v v I I v v I + Salvage value v - Tax on salvage v - NWC V + Recapture of "WC f Total free cash flow f If| If| $530,000 f