Calculating 'cash flows at the start'

Unison Limited is evaluating whether to replace its old machine with a new one that costs $400,000 and is expected to have an economic life of five years. The company spent $45,000 last year on a marketing consultant who identified $65,000 of new sales opportunities with the new machine, starting next year. The new machine will be partly financed with a $300,000 equity capital raising.

The old machine could be sold today for $50,000, although it has been fully depreciated for tax purposes. Unison plans on using the $50,000 sale proceeds to pay a dividend to shareholders today.

The new machine will result in a $5,000 reduction in inventory from its current level of $60,000. However, it is anticipated that accounts payable will increase by $7,000 from its current level. Accounts receivable will remain unchanged at $50,000 whether the new asset is purchased or not.

Installation of the new machine costs $6,000 today and the tax office confirms that this expense is tax deductible.

Assume the company tax rate is 30%.

What are the 'cash flows at the start'?

(5 marks)