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 3 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 3 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 3. 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

Year3-Year5-Year7-Year10-Year15-

year 1 133.33%-20.00%-14.29%-10.00%-5.00%

year 2 44.45%-32.00%-24.49%-18.00%-9.50%

year 3 14.81%-19.20%-17.49%-14.40%-8.55%

year 4 7.41%-11.52%-12.49%-11.52%-7.70%

year 5 11.52%-8.93%-9.22%-6.93%

year 6 5.76%-8.93%-7.37%-6.23%

year 7 8.93%-6.55%-5.90%

year 8 4.45%-6.55%-5.90%

year 9 6.56%-5.91%

year 10 6.55%-5.90%

year 11 3.28%-5.91%

year 12 5.90%

year 13 5.91%

year 14 5.90%

year 15 5.91%

year 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 $3,005.87then enter 3,006;if your answer is -$1,200.25then 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 3 of this replacement project?

5. What is the free cash flow (FCF) for year 3 of this replacement project?

6. What is the NPV of this replacement project?