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 $56,100; 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 $105,700 and requires $5,000 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 $70,200 without incurring any removal or cleanup costs. To support the increased business resulting from purchase of the new grinder, accounts receivable would increase by $39,400, inventories by $29,500, and accounts payable by $58,300. At the end of 5 years, the existing grinder would have a market value of zero; the new grinder would be sold to net $28,100 after removal and cleanup costs and before taxes. The firm is subject a 40% tax rate. The estimated earnings before depreciation, interest, and taxes over the 5 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 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 to 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 Total proceeds, sale of old asset Change in working capital Initial investment Year 1 Earnings before depreciation, interest, and taxes New grinder Existing grinder $43,500 $26,500 43,500 24,500 43,500 22,500 43,500 20,500 43,500 18,500 2 3 4 5