Your firm is considering replacing an old machine with a new machine. The new machine will cost $$5$ million and will produce free cash flows of $$4\mathrm{.}5$ million per year for the next five years. The new machine will be depreciated on a straight$-$line basis to a book value of $0$ and will have a salvage value of $$1\mathrm{.}25$ million after five years.

The existing machine currently has a book value of $$1$ million and can be sold today for $$2$ million. If left in place $($i$.$e$.$ if you not replace it$),$ it will produce free cash flows of $$2$ million per year for five years. After five years it will have a book value of $0$ and a salvage value of $$0\mathrm{.}5$ million.

Should you replace the old machine with the new machine? The WACC for both machines is $10\%$ and the firm$$s tax rate is $40\%.$

Hint: Focus on incremental cash flows $($i$.$e$.$ how cash flows change if you replace the machine$)$