Lombard Company is contemplating the purchase of a new high-speed widget grinder to replace the existing grinder. The existing grinder was purchased two years ago at an installed cost of $60,000; it was being depreciated under MACRS, using a five-year recovery period. The existing grinder will have a usable life of five more years. The new grinder costs $105,000 and requires $5,000 in installation costs; it has a five-year usable life and will be depreciated under MACRS, using a five-year recovery period. Lombard can currently sell the existing grinder for $70,000 without incurring any removal or cleanup costs. To support the increased business resulting from purchase of the new grinder, accounts receivable will increase by $40,000, inventories by $30,000, and accounts payable by $58,000. At the end of five years, the existing grinder will have a market value of zero; the new grinder will be sold to net $29,000 after removal and cleanup costs and before taxes. The firm is subject to a 21% tax rate. The estimated earnings before interest, taxes, depreciation, and amortization over the five years for both the new and the existing grinder appear in the following table. (See Table 4.2 for the applicable depreciation percentages.) Earnings before interest, taxes, depreciation, and amortization year New grinder // Existing grinder 1 $43,000 $26,000 2 43,000 24,000 3 43,000 22,000 4 43,000 20,000 5 43,000 18,000

A Calculate the initial cash flow associated with the replacement of the existing grinder by the new one.

B Determine the periodic cash flows 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 timeline the project cash flows associated with the proposed grinder replacement decision.