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Green Zebra wants to test out alternative energy for its facilities. It is considering an investment...

Green Zebra wants to test out alternative energy for its facilities. It is considering an investment in a new wind-energy tower with a price of $7million to replace its existing natural gas furnace. Today, the current machine has a book value of $4million and could be sold for $3.5 million. The new machine is expected to have three year life, and the old machine has three years remaining in its economic life. Both machines use straight line depreciation to a zero value at the end of the assets life. If the firm replaces the old machine with the new machine, it expects to save $5.5 million in operating costs before depreciation each year over the next three years. The old furnace will be worth $500,000 at the end of the project life. If the firm purchases the new wind machine, it will also need an investment of $150,000 in net working capital. The required return on the investment is 7 percent, and the tax rate is 25 percent. What is the project after tax salvage value at the end of the project life, T3?

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