A$.$ times frms eil need to dedide if they want to centinue to use their arrenk equipment of replace the equipment with nemer equipmen. The

company will faed to do ropicement analysis to determine which option is the best financial decisisn for the company.

The new equipmerk wil have a cost of $$9,000,000,$ and ir is eligible for $100\%$ bonus depreciation so it mill be fully deprediated at

$t=0.$

The old machine wax purchased before the new tax law, so it is being depreciated on a straight$-$line basis. It has a beok value of

$$200,000($ak year $0)$ and four more years of depreciation left per vear :$).$

value $($at year o$\}$ of $$300,000.$

Peplacing the old machine will require an investment in fet eperating working capikal $($NowC$)$ of $$50,000$ that will be rectrvered at the

end of the project's life $($year $6).$

The new machine is more efficient, so the firm's incremerkal earnings before interest and taxes $($EaIT$)$ mill increase by a total of

casts fincluding depreciation expense$)$ generated using the few equipment and thak earned using the old equipment.

The project's cost of capital is $13\%.$

The companys anfual tax rate is $25\%.$

The fnet present value $(NP)$ of this replacement project is:

$-$$$6,766,450$

$-$$$5,638,716$

$-$$$6,484,523$

$-$$$4,229,037$