Integrative: Determining net cash flows Lombard Company is contemplating the purchase of a new high$-$speed widget grinder to replace the existing grinder. The existing grinder was purchased $2$ years ago at an installed cost of $$58,500$; it was being depreciated under MACRS using a $5-$year recovery period. The existing grinder is expected to have a usable life of $5$ more years. The new grinder costs $$102,100$ and requires $$5,100$ in installation costs; it has a $5-$year usable life and would be depreciated under MACRS using a $5-$year recovery period. Lombard can currently sell the existing grinder for $$69,600$ without incurring any removal or cleanup costs. To support the increased business resulting from purchase of the new grinder, accounts receivable would increase by $$40,700,$ inventories by $$30,300,$ and accounts payable by $$58,200.$ At the end of $5$ years, the existing grinder would have a market value of zero; the new grinder would be sold to net $$29,200$ after removal and cleanup costs and before taxes. The firm is subject a $21\%$ tax rate. The estimated earnings before depreciation, interest, and taxes over the five years for both the new and the existing grinder are shown in the following table $.($Table $$ contains the applicable MACRS depreciation percentages.$)$

a$.$ Calculate the initial cash flow associated with the replacement of the existing grinder by the new one.

b$.$ Determine the periodic cash flows associated with the proposed grinder replacement. $($Note: Be sure to consider the depreciation in year $6.)$

c$.$ Determine the terminal cash flow expected at the end of year $5$ from the proposed grinder replacement.

d$.$ Depict on a time line the net incremental cash flows associated with the proposed grinder replacement decision.

Cost of new asset

Installation costs

Total cost of new asset

Proceeds from sale of old asset

Tax on sale of old asset

Total proceeds, sale of old asset

Change in working capital

Initial cash flow

Data table

$*$These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double$-$declining balance $(200\%)$ depreciation using the half$-$year convention.

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