New and Existing Grinder Table below

Earnings before depreciation, interest, and taxes Year New grinder Existing grinder 1 $42,500 $26,300 2 42,500 24,300 3 42,500 22,300 4 42,500 20,300 5 42,500 18,300

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 S56,400; it was being depreciated under MACRS using a 5-year recovery period. The existing grinder is expected to have a usable life of 5 more years. The new grinder costs $107,200 and requires $5,200 in installation costs; it has a 5-year usable life and would be depreciated under MACRS using a 5-year recovery period. Lombard can currently sell the existing grinder for $70,500 without incurring any removal or cleanup costs. To support the increased business resulting from purchase of the new grinder, accounts receivable would increase by $40,100, inventories by $30,100, and accounts payable by $58,300. At the end of 5 years, the existing grinder would have a market value o zero, the new grinder would be sold to net $28,100 after removal and cleanup costs and before taxes. The firm s 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 Table?contains the applicable MACRS depreciation percentages. 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 c. Determine the terminal cash flow expected at the end of year 5 from the d. Depict on a time line the relevant cash flows associated with the proposed g Data Table a. Calculate the initial investment associated with replacement of the old machine Calculate the initial investment below: (Round to the nearest dollar.) (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Cost of new asset Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Installation costs Total cost of new asset Percentage by recovery year* Recovery year 3 years 33% 45% 15% 5 years 7 years 14% 25% 18% 12% 9% 3% 9% 4% 10 years 10% 18% 14% 12% Proceeds from sale of old asset Tax on sale of old asset Total proceeds, sale of old asselt Change in working capital Initial investment 19% 12% 12% 5% 8% 8% 6% 4% 100% Enter any number in the edit fields and then click Check Answer 10 Totals 100% 100% 100% remaining