Solve not in Excel and provide all the formulas.
The company is evaluating if the replacement of an old machine is economically feasible. You have the following information:
New machine: purchase price is $8 million, economic life 10 years, annual EBITDA is $4.4 million, book value in 5 years is 0, while market value is 0.8 million. Old machine: book value today is $4 million while market value $2.8 million, remaining economic life is 10 years, annual EBITDA is $2.5 million, book value and market value in 5 years is 0. Company tax rate is 40% on both profits and capital gains. The cost of capital for the company is 14%. Find the incremental cash flows from replacement decision and evaluate if replacement is economically feasible based on NPV.