eBook The Bigbee Betting company is contemplating the replacement of one of its bottling machines with a newer and more efficient one. The old machine has a book value of $625,000 and a remaining useful te of years. The firm does not expect to realize any return from scrapping the oid machine in 5 years, but it can sell it now to another firm in the industry for $250,000. The old machine is being depreciated by $125,000 per year, using the straight-line method The new machine has a purchase price of $1,200,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $140,000. The applicable depreciation rates are 20%, 32%, 19%, 12%, 11% and 6%. It is expected to economize an electric power usage, labor, and repair costs, as well as to reduce the number of defective bottles. In total, an annual savings of $245,000 will be realized if the new machine is installed. The company's marginal tax rate is 35%, and it has a 12% WACC a. What initial cash outlay is required for the new machine? Cash outflow should be indicated by a minus sign. Round your answer to the nearest dollar b. Calculate the annual depreciation allowances for both machines and compute the change in the annual depreciation expense if the replacement is made. Depreciation allowances should be entered as positive values. Negative change values, if any, should be indicated by a minus sign. Round your answers to the nearest dollar, Year Depreciation Depreciation Change in Allowance, New Allowance, Old Depreciation 5 5 $ 15 25 35 45 55 $ 5 $ $ 5 5 $ c. What are the incremental net cash flows in Years 1 through 5? Round your answers to the nearest dollar Year 1 Year 2 Year 3 Year 4 Year 5 $ d. Should the firm purchase the new machine? -Select- In general, how would each the following factors affect the investment decision, and how should each be treated? 1. The expected life of the eating machine decreases The new machine will look -Select-than before due to the relative Select of the cash flows attributable to it-Select- 2. The WACC is not constant but is increasing as Bigbee adds more projects into its capital budget for the year. The NPV will select due to a --Select- capital cost. should be made