Attempts Average/2 4. Analysis of a replacement project At times time will need to decide if they want to continue to use their current equipment or replace the equipment with newer equipment. The company will need to do replacement anwys to determine which option is the best financial decision for the company, Price Co. is considering replacing an existing piece of equipment. The project involves the following The new equipment will have a cost of $1,200,000, and it will be deprecated on a straight line basis over a period of six years (voors 1-6) The old machine was being deprecated on a straight line balle It has a book value of $200,000 (at your C) and four more years of deprecation left ($50,000 per year) . The new equipment will have a salvage value of 30 at the end of the project's life (year 6). The old machine has a current salvage value (at year Oy of $300,000 Replaong the old machine will require an investment in net working capital (NOWC) of $30,000 that will be recovered at the end of the project's life (year o The new machine is more efficient, so the firm's cremental wings before interest and taxes (EMT) will increase by a total of 1,300,000 in each of the next year (years 1-6). The value represents the difference between the revenues and operating costs including depreciation expense) generated using the new equipment and that earned using the old equipment . The project's cost of capital 13% The company's annual tax rates 30% Complete 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 -$1.200.000 Complete the following table and compute the incremental cash flowes associated with the replacement of the old equipment with the new equipment: Year 1 Year 2 Year 3 Year 4 Year 5 Year o $1,200,000 investment ESIT $300,000 390,000 $300.000 $90,000 $300,000 $90,000 $300,000 $90,000 $300,000 $90,000 -Towes - 4 Depreciation KT $300,000 + Salvage value -Tex salvage NOW Recapture of NOWC Total free Cash Hoe The net present value (NPV) of this replacement project 575,761 $166,957 $89.131