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 $53,100, 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 $76,600 and requires $4,100 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 $54,700 without incurring any removal or cleanup costs. The firm is subject to a tax rate of 40%.

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.

New Machine			Old Machine
Year	Revenue	Expenses (excluding depr. and interest)	Revenue	Expenses (excluding depr. and interest)
1	$749,100	$720,700	$674,700	$659,800
2	$749,100	$720,700	$676,700	$659,800
3	$749,100	$720,700	$680,700	$659,800
4	$749,100	$720,700	$678,700	$659,800
5	$749,100	$720,700	$674,700	$659,800

(The table below contains the applicable MACRS depreciation percentages.) Note:

The new machine will have no terminal value at the end of 5 years.

Percentage by recovery year
Recovery year	3 years	5 years	7 years	10 years
1	33%	20%	14%	10%
2	45	32	25	18
3	15	19	18	14
4	7	12	12	12
5		12	9	9
6		5	9	8
7			9	7
8			4	6
9				6
10				6
11				4
Totals	100%	100%	100%	100%

a. Calculate the initial investment associated with replacement of the old machine by the new one.

b. Determine the incremental operating cash inflows associated with the proposed replacement. (Note: Be sure to consider the depreciation in year 6.)

c. Depict on a time line the relevant cash flows found in parts (a) and (b) associated with the proposed replacement decision.