P11-17 Integrative: Determining relevant cash flows Lombard Company is contemplating the purchase of a new high speed widget grinder to replace the existing grader. The existing grinder was purchased 2 years ago at an installed cost 01 560.000 it was being depreciated under ACRS using a 5 year recovery period. The existing grinder is expected to have a usable ife of 5 more years. The new grinder costs 5105 000 and requires 55.000 in installation costs, it has a 5 year usable life and would be depreciated under MACRS using a 5-year recovery penod Lombard can currently sell the existing grinder for 570.000 without incurring any removal or cleanup costs to support the increased business resulting from purchase of the new grinder accounts receivable would increase by $40.000, inventories by $30.000 and accounts payable by $58.000. At the end of 5 years the existing grinder would have a market value of zero, the new grinder would be sold to net 529,000 after removal and cleanup costs and before taxes. The firm is subject to 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, (See Table 4.2 on page 112 for the applicable depreciation percentages) Earnings before depreciation, interest, and taxes New grinder Existing grinder $43.000 526,000 43000 24.000 43.000 22.000 Year 1 2 3 4 43.000 20.000 5 43.000 18,000 a Calculate the initial investment associated with the replacement of the existing grinder by the new one D. Determine the incremental operating cash flows associated with the proposed grinder replacement (Note: Be sure to consider the depreciation in year 6.) c Determine the terminal cash flow expected at the end of year 5 from the proposed grinder replacement a Depict on a timeline the relevant cash flows associated with the proposed grinder replacement decision