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 $58,000; it was being depreciated straight-line for 5 years. The existing grinder is expected to have a usable life of 5 more years. The new grinder costs $104,100 and requires $4,500 in installation costs; it has a 5-year usable life and would be depreciated on a straight-line basis. Lombard can currently sell the existing grinder for $69,300 without incurring any removal or cleanup costs. To support the increased business resulting from purchase of the new grinder, accounts receivable would increase by $39,900, inventories by $29,800, and accounts payable by $57,600. At the end of 5 years, the existing grinder would have a market value of zero; the new grinder would be sold to net $29,600 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 5 a. Calculate the initial investment associated with the replacement of the existing grinder by the new one. b. Determine the incremental operating cash inflows associated with the proposed grinder replacement. 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. Year 3 $ $ Profit before depreciation and taxes Depreciation Net profit before taxes Taxes $ $ Net profit after taxes $ Operating cash inflows $ (Round to the nearest dollar.) Year 4 $ Profit before depreciation and taxes Depreciation $ Net profit before taxes $ - X i Data Table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) o Year 1 2 3 4 5 Earnings before depreciation, interest, and taxes New grinder Existing grinder $42,400 $26.900 42,400 24,900 42,400 22,900 42,400 20,900 42,400 18,900 Print Done c. Determine the terminal cash flow expected at the end of year 5 from the proposed grinder replacement. Calculate the terminal cash flow below: (Round to the nearest dollar.) Proceeds from sale of new asset Tax on sale of new asset $ Total proceeds from sale of new asset Change in working capital Terminal cash flow $ d. Depict on a time line the relevant cash flows associated with the proposed grinder replacement decision. The time line for the incremental operating cash inflows is shown below: (Select the best choice below.) O A. Year Year 0 1 2 3 4 5 6 Cash flow - $65,200 $13,348 $14,548 $15,748 $21,588 $22,788 OB. Year Year 0 1 2 3 4 5 6 Cash flow - $65,200 $13,348 $14,548 $15,748 $21,588 $22,788 $0 O C. Year Year 0 1 2 3 4 5 6 Cash flow - $65,200 $13,348 $14,548 $15,748 $21,588 $52,648 JHL FHI ali ni 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 $58,000; it was being depreciated straight-line for 5 years. The existing grinder is expected to have a usable life of 5 more years. The new grinder costs $104,100 and requires $4,500 in installation costs; it has a 5-year usable life and would be depreciated on a straight-line basis. Lombard can currently sell the existing grinder for $69,300 without incurring any removal or cleanup costs. To support the increased business resulting from purchase of the new grinder, accounts receivable would increase by $39,900, inventories by $29,800, and accounts payable by $57,600. At the end of 5 years, the existing grinder would have a market value of zero; the new grinder would be sold to net $29,600 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 5 a. Calculate the initial investment associated with the replacement of the existing grinder by the new one. b. Determine the incremental operating cash inflows associated with the proposed grinder replacement. 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. Year 3 $ $ Profit before depreciation and taxes Depreciation Net profit before taxes Taxes $ $ Net profit after taxes $ Operating cash inflows $ (Round to the nearest dollar.) Year 4 $ Profit before depreciation and taxes Depreciation $ Net profit before taxes $ - X i Data Table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) o Year 1 2 3 4 5 Earnings before depreciation, interest, and taxes New grinder Existing grinder $42,400 $26.900 42,400 24,900 42,400 22,900 42,400 20,900 42,400 18,900 Print Done c. Determine the terminal cash flow expected at the end of year 5 from the proposed grinder replacement. Calculate the terminal cash flow below: (Round to the nearest dollar.) Proceeds from sale of new asset Tax on sale of new asset $ Total proceeds from sale of new asset Change in working capital Terminal cash flow $ d. Depict on a time line the relevant cash flows associated with the proposed grinder replacement decision. The time line for the incremental operating cash inflows is shown below: (Select the best choice below.) O A. Year Year 0 1 2 3 4 5 6 Cash flow - $65,200 $13,348 $14,548 $15,748 $21,588 $22,788 OB. Year Year 0 1 2 3 4 5 6 Cash flow - $65,200 $13,348 $14,548 $15,748 $21,588 $22,788 $0 O C. Year Year 0 1 2 3 4 5 6 Cash flow - $65,200 $13,348 $14,548 $15,748 $21,588 $52,648 JHL FHI ali ni