$($Estimated time allowance: $40-50$ minutes$)$ 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

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 $$3,005\mathrm{.}87$ then enter $3,006$ ; if your answer is $$1,200\mathrm{.}25$ then enter

$-1,200$

What is the initial outlay $($I$0)$ for this project $-$ the project cash flows at time $=0?$

A $2.$ What is the free cash flow $($FCF$)$ for year $1$ of this

replacement project?

A

What is the free cash flow $($FCF$)$

for year $2$ of this replacement project?

A

What is the net

operating profit plus incremental depreciation for year $5$ of this replacement

project?

A

this replacement project?

What is the free cash flow $($FCF$)$ for year $5$ of

A$.$

What is the NPV of this