Teja International is determining the cash flow for a project involving replacement of an old machine by a new machine. The old machine bought a few years ago has a book value of Rs $800,000$ and it can be sold to realise a post$-$tax salvage value of Rs $900,000.$ It has a remaining life of five years after which its net salvage value is expected to be Rs $200,000.$ It is being depreciated annually at a rate of $25$ percent under the WDV method. The incre$-$ mental working capital associated with this machine is Rs $500,000.$

The new machine costs Rs $3,000,000.$ It is expected to fetch a net salvage value of

Rs $1,500,000$ after five years. The depreciation rate applicable to it is $25$ percent under the WDV method. The new machine is expected to bring a saving of Rs $650,000$ annually in manufacturing costs $($other than depreciation$).$ The tax rate applicable to the firm is $30$ percent.

$($a$)$ Estimate the cash flow associated with the replacement project.

$($b$)$ What is the NPV of the replacement project if the cost of capital is $14$ percent?