campany will need to do replacement analyzis to determine which option is the best financial decision for the company; Price Co. Is considering replacing an existiev, piece of equigerient. The profect involves the follswing: - The new equpment wil have a cost of $9,000,000, and it is eligible for 100+5 bomus depreciation so it will be fully depreciated at t=0. - The old machine was purchpled before the new tax law, so it is beisg depreciated on a straight-ine basis. It has a book value of $200,000 (at year 0) and four more yesrs of depreciacion left (550,000 per year ). - The new cquipment wil have a salvape value of $0 at the end of the project's afe (year 6). The cld machine has a current safvage value {at year 0} of $300,000. - Rleplacing the old machine will require an investment in net ogerating working capical (NoWC) of s60, 900 that ait be recovered et the end of the project's ife (year 6). - The new machine is more efficient, so the firm's incremeneal earnings before interest and tanes (EBTT) mit increase by a fotal of 3300,000 in each of the next six years (years 16 ). Hent: This value represents the difference Eetween the revehocs and opecating costs (inciuding depreciation expense) penerated using the nee equigment mhil that earned uning the old equipinent. - The project's cost of eapitalis 13\%. - The company's annual tax rate is 25%. Ch 12: Assignment - Cash Flow Estimation and Risk Analysis A Recasture of NoNC Total free cash fow The net present value (NPV) of this replacement project is: 46,772,695 44,232,935 16,499,500