Blink Corporation is considering to invest in a new production line to manufacture copying machines, these machines are expected to make annual revenues of $15,000,000 for 5 years, and considering annual operating costs of $12,000,000

To manufacture these copying machines Blink Corporation will need to buy a computerized production machine, and that will require the following costs:

* $15,000,000 the purchase value of the machine

$750,000 shipping and installation costs

* The production machine has a salvage value of $3,000,000 and will have an expected life of 5 years

* Using a straight line method depreciation the depreciation expense is $2,500,000 per year. In addition the firm is expects it will have to invest an additional $400,000 in working capital to support the new investment.

* The company is exempted from paying taxes.

According to previous information you are required to answer the following:

1- What kind of investment is this (expansion or replacement)?

2- Calculate the initial cash outflow

3- Calculate the relevant incremental cash flows for the expected life of the machine (5years)