Consider the case of Arm & Leg Financial Services Inc. (A&L): Arm & Leg Financial Services Inc. (A&L) currently earns annual revenues of $2,250,000 and incurs total operating expenses (excluding depreciation and interest expense) of 35% of revenues. Its earnings are taxed at a rate of 40%. Today, its budgeting committee is evaluating the purchase of a new security system. The security system is expected to cost $30,000, plus $3,500 in freight and setup expenses, and will be depreciated using straight-line depreciation. It is expected that the security system will have a useful life of 10 years and a salvage value equal to 25% of its purchase price. It is further expected that the security system will reduce the firm's losses due to customer shoplifting and employee theft, and cause a 15.00% increase in the firm's annual sales and total operating expenses (excluding depreciation and interest expense). If the security system is purchased, the firm will require an additional $5,000 in net working capital (NWC). The company's existing security system is almost completely worn out. It is fully depreciated and can't even be sold for scrap. As a result, there are no expected tax consequences associated with the disposal of the old security system. Given this information, 1. Complete the following equation that assists in the calculation of the firm's net investment (NINV) for the new security system and calculate its value. :5196 Type here to search 1. Complete the following equation that assists in the calculation of the firm's net investment (NINV) for the new security system and calculate its value. O NINV = Purchase price + Shipping and Installation charges + Additional NWC, which equals $38,500. O NINV = Purchase price + Annual depreciation expense, which equals $32,513. ONINV = Purchase price + Additional NWC, which equals $35,000. 2. Complete the following tale that can be used to compute the firm's incremental operating cash flows. Note: Round your answers to the nearest whole dollar. Firm Value With Security System Firm Value Without Security System Net Change $2,250,000 $118,125 Revenues $905,625 Less: Expenses Less: Depreciation Expense $0 $216,862 $1,462,500 $1,679,362 Earnings Before Taxes $96.745 $585.000 $671.745 5196 Less: Taxes Firm Value With Security System Net Change Revenues Firm Value Without Security System $2,250,000 Less: Expenses $905,625 $118,125 $0 $1,462,500 $216,862 Less: Depreciation Expense Earnings Before Taxes Less: Taxes Earnings After Taxes Plus: Adjustment for Non-Cash Expenses $1,679,362 $671,745 $585,000 $86,745 $877,500 $130,117 $1,007,617 $2,513 0 $2,513 $877,500 Net Cash Flow 3. Complete the following equation that assists in the calculation of the firm's terminal cash flow for the new security system and calculate its value. O NCFT = Operating After-Tax Cash Flow + Recovery of Net working capital, which totals $1,015,130 ONCFT = Operating After-Tax Cash Flow + Salvage value + Recovery of Net working capital, which totals $1,023,505 ONCFT = Operating After-Tax Cash Flow + Salvage value, which totals $1,018 505 Cue Continue