Answer to the given question below in detail. Do not use any softwares to solve this question.

12.3 Replacement Project Teja International is determining the cash flow for a project involving replacement of an old machine by a new machine. The old machine bought a few years ago has a book value of * 800,000 and it can be sold to realise a post tax salvage value of 900,000. It has a remaining life of five years after which its net salvage value is expected to be 200,000. It is being depreciated annually at a rate of 25 percent as per the WDV method. The new machine costs 3,000,000. It is expected to fetch a net salvage value of * 1,500,000 after five years. The depreciation rate applicable to it is 25 percent under the WDV method. The new machine is expected to bring a saving of 650,000 annually in manufacturing costs (other than depreciation). The incremental net working capital associated with the new machine is 500,000. The tax rate applicable to the firm is 30 percent. (a) Estimate the cash flow associated with the replacement project. (b) What is the NPV of the replacement project if the cost of capital is 14 percent