The description for this problem will $be$ used for the next $4$ answers and will $be$ worth $16$ points total. You only need $to$ have one spreadsheet $in$ your work, but make sure $to$ highlight all $of$ the answers. $In$ your work, I should $be$ able $to$ identify all relevant cash flows including OCF, CAPEX, and Changes $inNWC$ for each year, along with the $NPV$ and your decision. The final answer requires you $to$ make a decision, and the $3$ other answers are based $on$ calculations along the way including the $NPV.$

Clark Inc $isin$ the business $of$ sports entertainment and uses equipment that produces outdoor basketball courts. The current equipment they use $is$ four years old $(the$ initial cost was $$8,000,000$ four years ago$),$ and the IRS allows such equipment $tobe$ depreciated straight line $to$ a value $of0$ over $a5-$year period which means there $is$ one year $of$ depreciation remaining. The equipment $is$ expected $to$ last another four years $(so$ total life $is8$ years$).$ Today, the old equipment can $be$ sold for $$2,500,000.$ The older machinery requires a lot $of$ maintenance, and the cost $of$ operating $itis$ $$4,000,000$ per year. $If$ Clark keeps the old equipment, $it$ will $be$ worthless $at$ the end $of$ the additional $4$ years $of$ operation.

Clark $is$ considering buying a new more efficient machine $to$ replace the older equipment. Last year the firm spent $$300,000$ testing a version $of$ the new machine, which would cost $$12,000,000$ and last for four years. Current IRS rules allow the new machine $tobe$ depreciated straight line $to$ a value $of$ zero over four years, and the firm believes $it$ would have a market value $of$ $$1,000,000at$ the end $of$ the four years. The cost $of$ operating the new machinery would $be$ only $$800,000$ per year, though because $of$ its sophistication, Net Working Capital $(NWC)$ would need $tobe$ increased $by$ $$300,000at$ the time $of$ the acquisition. $At$ the end $of$ the four years, the increase $inNWC$ will $be$ completely recovered. Total revenue $(before$ expenses$)$ will $be$ $$5,000,000$ under either scenario and would $be$ unaffected $by$ the switch $in$ equipment. The firm$s$ tax rate $is28\%$ and the cost $of$ capital $is14\%.$

$1.$ What $is$ the after$-$tax salvage value $of$ the old machine $if$ sold today?