IntegrativeDetermining 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 $55,500; 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 $105,900 and requires $5,500 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 $69,800 without incurring any removal or cleanup costs. To support the increased business resulting from purchase of the new grinder, accounts receivable would increase by $40,600, inventories by $29,100, and accounts payable by $57,200. At the end of 5 years, the existing grinder is expected to 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 pays taxes at a rate of 40% on both ordinary income and capital gains. The estimated profits before depreciation and taxes over the 5 years for both the new and the existing grinder are shown in the following table. (Table 3.2 on page 100 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 timeline the relevant cash flows associated with the proposed grinder replacement decision.

reston 13 S 35 of 40 35 complete This Test 100 pts po Integrative Determining relevant cash flows Lombard Company is contemplating the purchase of a new high-speed widget grinder to replace the dating inder. The casting grinder was purchased 2 years ago at annuale cost of $6.50 was being depreciated w would be depreciated MACRS using a ser recovery period. Lombard can curry of the iting grinder for 10.000 without routing any removal och cols. To support the normed business resulting from purchase of the owners would increase by S40.600, inventories by $28.100, and accounts payable by 557200. At the end of 5 years, the wing grinder would have a marcate of the new puder would be sold to ret $29.200w round chocoland betretases the foresties The imated earrings before depreciation, wterest and taxes over the years for both the new and the song grinder are shown in the following table contain the cable MACRS depreciation percentages a. Cache in investment sociated with the placement of the ingrinder by the new one b. Determine the operating cash flows socialed with the proposed grinder replacement. Be sure to consider the depreciation in year 6) c. Determine the final cash flow expected at the end of years from the proposed grinder replacement d. Depict on a me in the relevant cash flow stocated was the proposed gender replacement con a. Call the tivement associated with replacement of the old machine by the new one Calculation below. Round to the dar) Cost of new asset 5 Proceeds from a fost Tax on sale of old Total proceeds sale fosse Change in woning capital 5 Determine the incremental operating can insowa autoclared in the proposed replacement.wow. Be sure to consider the depreciation in year) Calculate the cash flows in the old machinebound to the newest) Prots before precision and Depreciation 5 5 5 1 5 Tas Donghwa Enter a number in the edits and then continue to the destin 20 888 & 7 $ 4 2 6 3 5 P 111 R Y reston 13 S 35 of 40 35 complete This Test 100 pts po Integrative Determining relevant cash flows Lombard Company is contemplating the purchase of a new high-speed widget grinder to replace the dating inder. The casting grinder was purchased 2 years ago at annuale cost of $6.50 was being depreciated w would be depreciated MACRS using a ser recovery period. Lombard can curry of the iting grinder for 10.000 without routing any removal och cols. To support the normed business resulting from purchase of the owners would increase by S40.600, inventories by $28.100, and accounts payable by 557200. At the end of 5 years, the wing grinder would have a marcate of the new puder would be sold to ret $29.200w round chocoland betretases the foresties The imated earrings before depreciation, wterest and taxes over the years for both the new and the song grinder are shown in the following table contain the cable MACRS depreciation percentages a. Cache in investment sociated with the placement of the ingrinder by the new one b. Determine the operating cash flows socialed with the proposed grinder replacement. Be sure to consider the depreciation in year 6) c. Determine the final cash flow expected at the end of years from the proposed grinder replacement d. Depict on a me in the relevant cash flow stocated was the proposed gender replacement con a. Call the tivement associated with replacement of the old machine by the new one Calculation below. Round to the dar) Cost of new asset 5 Proceeds from a fost Tax on sale of old Total proceeds sale fosse Change in woning capital 5 Determine the incremental operating can insowa autoclared in the proposed replacement.wow. Be sure to consider the depreciation in year) Calculate the cash flows in the old machinebound to the newest) Prots before precision and Depreciation 5 5 5 1 5 Tas Donghwa Enter a number in the edits and then continue to the destin 20 888 & 7 $ 4 2 6 3 5 P 111 R Y