Part 1 of 14 O Points: 0 of 2 Net cash flows Central Laundry and Cleaners is considering replacing an existing piece of machinery with a more sophisticated machine. The old machine was purchased 3 years ago at a cost of $48,400, and this amount was being depreciated under MACRS using a 5-year recovery period. The machine has 5 years of usable life remaining. The new machine that is being considered costs $77,000 and requires $3,700 in installation costs. The new machine would be depreciated under MACRS using a 5-year recovery period. The firm can currently sell the old machine for $54,500 without incurring any removal or cleanup costs. The firm is subject to a tax rate of 21%. The revenues and expenses (excluding depreciation and interest) associated with the new and the old machines for the next 5 years are given in the table (Table contains the applicable MACRS depreciation percentages.) Note: The new machine will have no terminal value at the end of 5 years. a. Calculate the initial cash flow associated with replacement of the old machine by the new one. b. Determine the periodic cash flows associated with the proposed replacement. (Note: Be sure to consider the depreciation in year 6.) c. Depict on a time line the net cash flows found in parts (a) and (b) associated with the proposed replacement decision. Cost of new asset Installation costs Total cost of new asset. Proceeds from sale of old asset Tax on sale of old asset Total proceeds, sale of old asset Initial cash flow CHILD a. Calculate the initial cash flow associated with replacement of the old machine by the new one. Calculate the initial cash flow below: (Round to the nearest dollar.) Year 1 2 3 4 5 Revenue $750,700 750,700 750,700 750,700 750,700 New machine Expenses (excluding depreciation and interest) $719,800 719,800 719,800 719,800 719,800 Revenue $674,800 676,800 680,800 678,800 674,800 Old machine Expenses (excluding depreciation and Interest) $659,900 659,900 659,900 659,900 659,900 a tubi (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Recovery year 1 2 3 4 5 6 7 9 10 11 Totals 3 years 33% 45% 15% 7% Percentage by recovery year 5 years 20% 32% 19% 12% 12% 5% 7 years 14% 25% 18% 12% 9% 9% 9% 4% 10 years 10% 18% 14% 12% 9% 8% 7% 6% 6% 6% 4% 100% 100% 100% 100% "These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance (200%) depreciation using the half-year convention
