Your company is considering replacing an existing

piece of equipment. The company has collected the

following information about the proposed

replacement. $($Note: You may or may not need to

use all of this information, use only the information

that is relevant.$)$

The new equipment has a price $($at Year $0)$ of

$$1,000,000$ and will be depreciated on a straight line

basis over $8$ years $($Year $1-8).$ It will have a salvage

value of $$400,000$ at Year $8.$

The old machine was also being depreciated on a

straight line basis. It has a book value $($at Year $0)$ of

$$200,000$ and four more years left of depreciation

$($$$50,000$ per year in Year $1-4)$ and a current salvage

value $($at Year $0)$ of $$300,000.$

If the company goes ahead with the replacement, it

will have an effect on the company's net working

capital. At Year $0,$ inventory will increase by $$50,000$

and accounts payable will increase by $$20,000.$ At

Year $8,$ the net working capital will be recovered

after the project ends.

The replacement machine, because of efficiencies, is

expected to produce incremental EBIT of $$300,000$

for each of the next $8$ years $($Year $1-8).$

The company's interest expense each year will be

$$40,000$ per year.

The company's overall WACC is $12$ percent.

However, the proposed replacement project is

more risky than the average project, leading the firm

to use a WACC of $14$ percent for this project.

The company's tax rate is $40$ percent.

Determine the NPV for this project.