Integrative Determining relevant 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 $62,800, 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 $102,300 and requires $4,900 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 $70,400 without incurring any removal or cleanup costs. To support the increased business resulting from purchase of the new grinder, accounts receivable would increase by $40,100, inventories by $30,200, and accounts payable by $57.700. At the end of 5 years, the existing grinder would have a market value of zero, the new grinder would be sold to net $28,900 after removal and cleanup costs and before taxes. The firm is subject a 40% tax rate. The estimated earnings before depreciation, interest, and taxes contains the applicable MACRS depreciation over the 5 years for both the new and the existing grinder are shown in the following table (Table percentages) a. Calculate the initial investment associated with the replacement of the existing grinder by the new one b. Determine the operating cash inflows 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. -m t:0 abl cle en tm 3 ca as rel tm ent Data table (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Year 1 2345 Earnings before depreciation, interest, and taxes New grinder $43,300 43,300 43,300 43,300 43,300 Existing grinder $25,900 23,900 21,900 19,900 17,900 1 der would tion, intere CRS depr in year 6. K Data table Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Recovery year 1 2 3 4 5 6 7 8 9 10 11 Totals 3 years 33% 45% 15% 7% 100% Percentage by recovery year" 5 years 20% 32% 19% 12% 12% 5% 100% 7 years 14% 25% 18% 12% 9% 9% 9% 4% 100% 10 years 10% 18% 14% 12% 9% 8% 7% 6% 6% 6% 4% 100% -Xold nd on a. Calculate the inihal investment associated with the replacement of the existing grinder by the new one b. Determine the operating cash inflows 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 relevant cash flows associated with the proposed grinder replacement decision a. Calculate the initial investment associated with replacement of the old machine by the new one. Calculate the initial investment below: (Round t the nearest dollar) Cost of new asset Installation costs Total cost of new asset Proceeds from sale of old asset Tax on sale of old asset Minuan nyamais Phantas ICCOM Total proceeds, sale of old asset Change in working capital Initial investment