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Year O Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Initial investment EBIT - Taxes + New depreciation - Old depreciation

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Year O Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Initial investment EBIT - Taxes + New depreciation - Old depreciation + Salvage value - Tax on salvage - NWC + Recapture of NWC Total free cash flow $700,000 $620,000 The net present value (NPV) of this replacement project is: $1,363,773 $1,568,339 O $1,159,207 $1,022,830

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