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 1 33.33% 20.00% 14.29% 10.00% 5.00% 2 44.45% 32.00% 24.49% 18.00% 9.50% 3 14.81% 19.20% 17.49% 14.40% 8.55% 4 7.41% 11.52% 12.49% 11.52% 7.70% 5 11.52% 8.93% 9.22% 6.93% 6 5.76% 8.93% 7.37% 6.23% 7 8.93% 6.55% 5.90% 8 4.45% 6.55% 5.90% 9 6.56% 5.91% 10 6.55% 5.90% 11 3.28% 5.91% 12 5.90% 13 5.91% 14 5.90% 15 5.91% 16 2.95%

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?