12: Assignment-Cash Flow Estimation and Risk Analysis 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 o . Replacing the old machine will require an investment in net working capital (NWC) of $50,000 that will be recovered at the end of the project's life . The new machine is more efficient, so the firm's incremental earnings before interest and taxes (EBIT) will increase by a total of $400,000 in each $300,000 next six years (years 1-6). Hint: This value represents the difference between the revenues and operating costs (indluding 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 35%. omplete 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 2 Year 3 Year 4 Year 5 Year 6 Initial investment EBIT $400,000 $140,000 $100,000 $1,800,000 $400,000 - Taxes - Old depreciation +Salvage value H Tax on salvagellile + NWC t Recapture of NWC Total free cash flow $560,000 The net present value (NPV) of this replacement project is: O $608,258 O $528,920 O $396,690 O $449,582