P11-16 (similar to) Question Help Relevant cash flowslong dashNo terminal value

Central Laundry and Cleaners is considering replacing an existing piece of machinery with a more sophisticated machine. The old machine was purchased 3 years ago at a cost of $45,900, and this amount was being depreciated under MACRS using a 5-year recovery period. The machine has 5 years of usable life remaining. The new machine that is being considered costs $77,000 and requires $4,400 in installation costs. The new machine would be depreciated under MACRS using a 5-year recovery period. The firm can currently sell the old machine for $54,600 without incurring any removal or cleanup costs. The firm is subject to a tax rate of 40%. The revenues and expenses (excluding depreciation and interest) associated with the new and the old machines for the next 5 years are given in the table

(Table

... contains the applicable MACRS depreciation percentages.) Note: The new machine will have no terminal value at the end of 5 years. a. Calculate the initial investment associated with replacement of the old machine by the new one. b. Determine the incremental operating cash inflows associated with the proposed replacement. (Note: Be sure to consider the depreciation in year 6.) c. Depict on a time line the relevant cash flows found in parts (a) and (b) associated with the proposed replacement decision.

New machine Old machine Expenses (excluding depreciation and interest $720,600 720,600 720,600 720,600 720,600 Expenses (excluding depreciation and interest) 5659,000 659,000 659,000 659,000 659,000 Year Revenue $750,900 750,900 750,900 750,900 750,900 Revenue $673,500 675,500 679,500 677,500 673,500