McKesson, Inc. is considering an asset replacement project of replacing a control device. This old control device has been fully depreciated but can be sold for $11,250. The new control device, which is more automated, will cost $82,000. The new device's installation and shipping costs will total $36,000. The new device will be depreciated on a straight-line basis over its 2-year economic life to an estimated salvage value of $0. The actual salvage value of this device at the end of 2-year period (That is, the market value of the device at the end of 2-year period) is estimated to be $12,500. If the replacement project is accepted, McKesson will require an initial working capital investment of $4,950 (that is, adding $4,950 initially to its net working capital).

During the 1st year of operations, McKesson expects its annual revenue to increase from $163,800 to $291,600. After the 1st year, revenues from the replacement are expected to increase at a rate of $4,032 a year for the remainder of the project life.

McKesson's incremental operating costs associated with the replacement project are expected to decrease from $51,840 to $27,360 during the 1st year and increase at a rate of $3380 for the remainder of the project life.

McKesson expects that it will have to add about $4,500 to its net working capital in year 1, and nothing in year 2. At the end of the project, the total accumulated net working capital required by the project will be recovered.

McKesson has a marginal tax rate of 35%.

Question 20 (3.57 points)

What is the initial net investment for McKesson to undertake this replacement project?

Question 20 options:

	$122,950.00
	$107,762.50
	$111,700.00
	$115,637.50

Question 21 (3.57 points)

What is McKesson's net operating cash flow at the end of year 1?

Question 21 options:

	$113,332.00
	$115,132.00
	$108,832.00
	$119,632.00

Question 22 (3.57 points)

What is McKesson's net operating cash flows at the end of year 2?

Question 22 options:

	$137,630.80
	$135,705.80
	$131,330.80
	$142,005.80