The NeaterMaid Cleaning Service Company is considering replacing its existing cleaning equipment. The existing equipment cost $100,000 five years ago and was depreciated using MACRS as a 3-year asset. The management of NeaterMaid estimates the old equipment can be sold for $10,000. The new equipment costs $120,000 and would be depreciated using MACRS for a 3-year asset. At the end of five years, Neater-Maid’s management expects to sell the new equipment for $200,000. The new equipment is more efficient and would reduce expenses by $20,000 per year for the next five years. The marginal tax rate is 30%.

(a)

What are the cash flows related to the acquisition of the new equipment?

(b)

What are the cash flows related to the disposition of the old equipment?

(c)

What are the cash flows related to the disposition of the new equipment?

(d)

What are the operating cash flows for each year?

(e)

What are the net cash flows for each year?