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Question Help Integrative Determining net 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 $58,500, 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 $101,700 and requires $4,500 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 $70,900 without incurring any removal or cleanup costs. To support the increased business resulting from purchase of the new grinder, accounts receivable would increase by $40,800, inventories by $30,400, and accounts payable by $58,400. At the end of 5 years, the existing grinder would have a market value of zero the new grinder would be sold to net $29,500 after removal and cleanup costs and before taxes. The firm is 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 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. Calculate the initial investment associated with replacement of the old machine by the new one. Calculate the initial investment below: (Round to the nearest dollar.) Cost of new asset Installation costs Enter any number in the edit fields and then click Check Answer. Clear All Check Answer 14 parts 1 remaining ash sed 2 A Data Table able 1 CRS (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) crease by $5 nup cd id the ent asso Ish flows Eh flow e nent asse Year Earnings before depreciation, interest, and taxes New grinder Existing grinder $42,200 $26,300 42,200 24,300 42,200 22,300 42,200 20,300 42,200 18,300 ent below: CAWN Print Done edit fields a Data Table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year Recovery year 3 years 5 years 7 years 33% 20% 14% 45% 32% 25% 15% 19% 18% 7% 12% 12% 12% 9% 5% 9% 9% 4% 10 years 10% 18% 14% 12% 9% 8% 7% 6% Print Done Integrative-Determining net 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 $62,300; 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 $100,700 and requires $5,400 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 $69,700 without incurring any removal or cleanup costs. To support the increased business resulting from purchase of the new grinder, accounts receivable would increase by $39,800, inventories by $29,100, and accounts payable by $57,100. At the end of 5 years, the existing grinder would have a market value of zero; the new grinder would be sold to net $29,300 after removal and cleanup costs and before taxes. The firm is 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 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 yoar 5 from the proposed grinder replacement. a. Calculate the initial investment associated with replacement of the old machine by the new one. Calculate the initial investment below: (Round to the nearest dollar.) Cost of new asset Installation costs ulat - fade and then clickCheck Answer milar to) _ x i Data Table nining net cashf vas purchased 2 have a usable under MACRS pport the increase nts payable by $5 wal and cleanup cd the new and the tial investment asso perating cash flows erminal cash flow e to replac fear recor lit has a 5- hout incurr $39,800, brinder wou ciation, inte Rs deprecia (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) bn in year 6.) Year mitial investment ass Earnings before depreciation, interest, and taxes New grinder Existing grinder $42,800 $26,700 42,800 24,700 42,800 42,800 20,700 42,800 18,700 al investment below: o AWN 22,700W asset costs Der in the edit fields a Print Done Clear All Check Ar P11-25 (st estic 0 Data Table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) egrative-Deter existing grinder nder is expected uld be depreciate anup costs. To su 2,100, and accou 2,300 after remov 5 years for both Calculate the initie Determine the op Determine the ter Calculate the initia isting bd. The able lif remo pries b old to and taxe percent Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recobury year Recovery year 3 years 5 years 7 years 33% 20% 14% 45% 32% 25% 15% 19% 18% 7% 12% 12% 12% 9% 5% 9% 9% 4% 10 years 10% 18% 14% 12% 9% alculate the initiali Cost of new asg DOUAWN 8% 7% Installation cost ater any number is Print Done 4 parts iswer 4 remaining