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 $55,300; 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 $105,800 and requires $4,500 in installation costs; it has a 5-year usable life andwould be depreciated on a straight-line basis. Lombard can currently sell the existing grinder for $70,900 without incurring any removal or cleanup costs. To support the increased business resulting from purchase of the new grinder, accounts receivable would increase by $40,400, inventories by $29,000, 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 $29,200 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

Year	New grinder		Existing grinder
1	$43,600		$25,200
2	43600		23200
3	43600		21200
4	43600		19200
5	43600		17200

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:

b. Determine the incremental operating cash inflows associated with the proposed replacement. (Note: Be sure to consider the depreciation in year 6.)

Calculate the cash flows with the old machine below:(Round to the nearest dollar.)

Year	1
Profit before depreciation and taxes	$
Depreciation	$
Net profit before taxes	$
Taxes	$
Net profit after taxes	$
Operating cash inflows	$

(Round to the nearest dollar.)

Year	2
Profit before depreciation and taxes	$
Depreciation	$
Net profit before taxes	$
Taxes	$
Net profit after taxes	$
Operating cash inflows	$

(Round to the nearest dollar.)

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	$
Taxes	$
Net profit after taxes	$
Operating cash inflows	$

(Round to the nearest dollar.)

Year	5
Profit before depreciation and taxes	$
Depreciation	$
Net profit before taxes	$
Taxes	$
Net profit after taxes	$
Operating cash inflows	$

(Round to the nearest dollar.)

Year	6
Profit before depreciation and taxes	$
Depreciation	$
Net profit before taxes	$
Taxes	$
Net profit after taxes Net profit after taxes	$
Operating cash inflows	$

Calculation the cash flows with the new machine and the incremental cash flows below:(Round to the nearest dollar.)

Year	1
Profit before depreciation and taxes	$
Depreciation	$
Net profit before taxes	$
Taxes	$
Net profit after taxes	$
Operating cash inflows	$
Incremental cash flows	$

(Round to the nearest dollar.)

Year	2
Profit before depreciation and taxes	$
Depreciation	$
Net profit before taxes	$
Taxes	$
Net profit after taxes	$
Operating cash inflows	$
Incremental cash flows	$

(Round to the nearest dollar.)

Year	3
Profit before depreciation and taxes	$
Depreciation	$
Net profit before taxes	$
Taxes	$
Net profit after taxes	$
Operating cash inflows	$
Incremental cash flows	$

(Round to the nearest dollar.)

Year	4
Profit before depreciation and taxes	$
Depreciation	$
Net profit before taxes	$
Taxes	$
Net profit after taxes	$
Operating cash inflows	$
Incremental cash flows	$

(Round to the nearest dollar.)

Year	5
Profit before depreciation and taxes	$
Depreciation	$
Net profit before taxes	$
Taxes	$
Net profit after taxes	$
Operating cash inflows	$
Incremental cash flows	$

(Round to the nearest dollar.)

Year	6
Profit before depreciation and taxes	$
Depreciation	$
Net profit before taxes	$
Taxes	$
Net profit after taxes	$
Operating cash inflows	$
Incremental cash flows	$

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.