Apple is considering a replacement machine that has a cost of $25,000.  The new machine will permit output expansion, so annual revenues are estimated at $5,000 during its operating period.  The new machine's greater efficiency is expected to reduce operating expenses by $3,000 per year.  This machine has an estimated useful life of 5 years and will be depreciated using a straight-line basis.  The machine will cause a change in working capital of $3,000 per year. California's marginal tax rate is 40% and its cost of capital is 5%.  Use the following equation in your effort to answer the following questions.

CFt = EBITt(1-TAXt) + DEPt -    WCRt - CAPEXt

1. Create a cash flow schedule and determine if Apple should replace the old machine?
2. Briefly discuss in words only how your analysis process might change in the following situations:
3. The increase in sales is highly dependent on the strength of the economy.
4. The replacement machine is much more reliable than the existing one so that the risk of temporary shut downs in production is lower.
5. The replacement machine has an estimated useful life of seven years