. The new equipment will have a cost of $600,000, and it is eligible for 100% bonus depreciation so it will be fully deprecated at t = 0. The old machine was purchased before the new tax law, so it is being deprecated 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 operating working capital (NOWC) of $60,000 that will be recovered at the end of the project's life (year 6). The new machine is more efficient, so the firm's incremental earnings before interest and taxes (EBIT) will increase by a total of $500,000 in each of the next six years (years 1-6). Hint: This value represents the difference between the revenues and operating 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 25% Complete the following table and compute the incremental cash flows associated with the replacement of the old equipment with the new equipment Year o Year 1 Year 3 Year 2 Year 4 Year 5 Y Initial investment EBIT Tes CE C Depreciation Save Mita vestment BIT 1- Taxes k -& Depreciation + Salvage value - Tax on salvage NOWC + Recapture of NOWC Total free cash flow The net present Value (NPV) of this replacement project is $1,506,863 5941,79 51.255,719 51,444,077