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Easy - Chair Corp. is considering replacing its existing equipment that is used to produce comfort recline chairs. This existing equipment was purchase 2 years

Easy-Chair Corp. is considering replacing its existing equipment that is used to produce comfort recline chairs. This existing equipment was purchase 2 years ago at a base price of $100,000. Installation costs at the time for this old equipment were $5,000. The existing equipment is considered a 5-year class for MACRS. The existing equipment can be sold today for $40,000 and for $0 in 5 years. The new equipment has a purchase price of $200,000 and is also considered a 5-year class for MACRS. Installation costs for the new equipment are $10,000. It is estimated that this equipment can be sold in 5 years (end of project) for $70,000. This new equipment is more efficient than the existing one and thus savings before taxes using the new machine are $20,000 a year. This new equipment will also require additional working capital today of $12,000; this investment will be recovered at the end of the project in year 5. The company's marginal tax rate is 20% and the cost of capital is 10%.
What is the NPV of this replacement project? The following 6 questions reach the value for the answer.
MACRS Fixed Annual Expense Percentages by Recovery Class
Year 3-Year 5-Year 7-Year 10-Year 15-Year
133.33%20.00%14.29%10.00%5.00%
244.45%32.00%24.49%18.00%9.50%
314.81%19.20%17.49%14.40%8.55%
47.41%11.52%12.49%11.52%7.70%
511.52%8.93%9.22%6.93%
65.76%8.93%7.37%6.23%
78.93%6.55%5.90%
84.45%6.55%5.90%
96.56%5.91%
106.55%5.90%
113.28%5.91%
125.90%
135.91%
145.90%
155.91%
162.95%
For your answer, round to the nearest dollar, do not enter the $ sign, use commas to separate thousands, use a negative sign in front of first number is the cash flow is negative (do not use parenthesis to indicate negative cash flows). For example, if your answer is $3,005.87 then enter 3,006; if your answer is -$1,200.25 then enter -1,200
1. What is the initial outlay (I0) for this project - the project cash flows at time =0?
2. What is the free cash flow (FCF) for year 1 of this replacement project?
3. What is the free cash flow (FCF) for year 2 of this replacement project?
4. What is the net operating profit plus incremental depreciation for year 5 of this replacement project?
5. What is the free cash flow (FCF) for year 5 of this replacement project?
6. What is the NPV of this replacement project?

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