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Net cash owsNo 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 $52,500, 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 $75,600 and requires $4,300 in installation costs. The new machine would be depreciated under MACRS using a 5-year recovery period. The rm can currently sell the old machine for $55,000 without incurring any removal or cleanup costs. The rm 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 inows associated with the proposed replacement. (Note: Be sure to consider the depreciation in year 6.) c. Depict on a time line the relevant cash ows found in parts (a) and (b) associated with the proposed replacement decision. 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 Total cost of new asset $ Proceeds from sale of old asset $ Tax on sale of Old asset Total proceeds, sale of old asset $ Initial investment $ Net cash flows-No terminal value Central Laundry and Cleaners is considering replacing an existing piece of machinery will i Data Table was being depreciated under MACRS using a 5-year recovery period. The machine has 5 years of usable life remaining. The ne be depreciated under MACRS using a 5-year recovery period. The firm can currently sell the old machine for $55,000 without in depreciation and interest) associated with the new and the old machines for the next 5 years are (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a given in the table . (Table ] contains the applicable MACRS depreciation percentages.) Note: The new machine will ha spreadsheet. a. Calculate the initial investment associated with replacement of the old machine by the new one. Rounded Depreciation Percentages by Recovery Year Using MACRS for i Data Table First Four Property Classes Percentage by recovery year* Recovery year 3 years 5 years 7 years 10 years 33% 20% 14% 10% Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) 45% 32% 25% 18% W N 15% 19% 18% 14% New machine Old machine 7% 12% 12% 12% Expenses Expenses (excluding depreciation JOUIA 12% 9% 9% (excluding depreciation Year Revenue and interest) Revenue and interest) 5% 9% 8% $673,600 $659,600 9% 7% $750,700 $720,900 750,700 720,900 675,600 659,600 8 4% 6% 750,700 720,900 679,600 659,600 UI AWN 750,700 720,900 677,600 659,600 10 6% 11 4% 750,700 720,900 673,600 659,600 Totals 100% 100% 100% 100% These percentages have been rounded to the nearest whole percent to simplify calculations while Print Done retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance (200%) depreciation using the half-year convention