The new $-$piece of equipment will have a cost of $$2,400,000,$ and it will be depreciated on a straight$-$line basis over a period of five years.

The old machine is also being depreciated on a straight$-$line basis. It has a book value of $$200,000($at year $0)$ and three more years of depreciation left $($ $$50,000$ per year$).$

The new equipment will have a salvage value of $$0$ at the end of the project's life $($year $5).$ The old machine has a current salvage value $($at year $0)$ of $$300,000.$

Replacing the old machine will require an investment in net working capital $($NWC$)$ of $$60,000$ that will be recovered at the end of the project's life $($year $5).$

The new machine is more efficient, so the incremental increase in operating income before taxes will increase by a total of $$500,000$ in each of the next five years $($years $1-5).($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 required rate of return is $10\%.$

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.

Initial

investment

Oper

inc. before

tax

Taxes

New

depreciation

Old

depreciation

Net salvage

value

Net working $($

capital

Return of

net working

capital

Total net

cash flow

The net present value $($NPV$)$ of this replacement project is