QUESTION 7 Replacement Project A Firm is considering the Replacement of the Existing Equipment. The Firm's Marginal Tax Rate is 40%. - The Old Equipment was purchased two years ago at a cost of $200M with an expected useful life of 6 years. The Old Equipment is depreciated on a Straight-Line Basis and can be sold today for $110M. If not replaced, the Equipment will have a Salvage Value of $20M at the End of its Useful Life. - The New Equipment costs $420M, requires an additional cost of $80M for Shipping and Installation, has an Estimated Life of 4 Years and a Salvage Value of $120M. The Equipment falls into MACRS 5-Year Class and will increase Revenues by $80M Per Year, while Reducing Operating Costs by $25M Per Year. The New Equipment requires an Increase in NWC of $30M at Year 0. 5-Year MACRS: Year 1: 20%, Year 2: 32%, Year 3: 19%, Year 4: 12%, Year 5: 11%, Year 6: 6% What is the Cash Flow at Year 3? $122M $89M $104M $96M