P11-25 Integrative: Determining net cash flows Pirelli & C. S.p.A. is considering purchasing a new rubber extrusion line that produces rolling bands, flanks, and the other prod- ucts used in the process of tire manufacturing. This line will replace the existing one, which was purchased 5 years ago, at an installed cost of 400,000; it was being depreciated under straight-line amortization, and with a usable life of 5 more years. The new line costs 1,200,000 and requires 150,000 in installation costs; it has a 5-year usable life and would be depreciated under straight-line amortization, using a 5-year recovery period for the calculation. Pirelli can currently sell the existing line for 150,000 without incurring any additional costs. To support the increased busi- ness resulting from purchase of the new line, accounts receivable would increase by 400,000, inventories by 300,000, and accounts payable by 570,000. At the end of 5 years, the existing line would have a market value of zero; the new line would be sold to net 300,000 after removal and cleanup costs and before taxes. The firm is subject to a 24% tax rate. The estimated earnings before interest, taxes, deprecia- tion, and amortization over the 5 years for both the new and the existing line are shown in the following table. Year Earnings before interest, taxes, depreciation, and amortization New line Existing line 450,000 280,000 450,000 250,000 450,000 200,000 450,000 180,000 450,000 150,000 a. Calculate the initial investment associated with the replacement of the existing line by the new one. b. Determine the operating cash flows associated with the proposed line replacement. c. Determine the terminal cash flow expected at the end of year 5 from the proposed line replacement. d. Depict on a timeline the incremental cash flows associated with the proposed line replacement decision