nd the value of the terminal cash flows.

9. Joley's department store has recently received the results of a study that suggests that potential sales are being lost because many customers dislike having to use the elevator in Joley's and prefer to go across the street to Foske's department store, which has an escalator. Consequently, Joley's is considering the replacement of the elevator with a new escalator. The elevator was purchased 10 years ago for $140,000 and is being depreciated (straight-line) to a salvage value of $40,000 10 years from now. It can be sold today for $80,000. The escalator can be purchased for $300,000 and would be depreciated (straight-line) to a salvage value of $100,000 in 10 years. In addition, Joley's anticipates that having an escalator rather than an elevator will increase sales by $20,000 annually and decrease operating expenses by $5,000 annually. Joley's has a marginal tax rate of 25%.

a) What is the present book value of the elevator?

b) What is the initial cash outflow associated with the replacement of the

elevator?

c) What will the incremental change in annual cash flow be if Joley's

replaces the elevator?

d) What will the terminal cash flows be if Joley's repla