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Part $1$

$$Integrative: Determining net cash flows$$Lombard Company is contemplating the purchase of a new$$ high$-$speed widget grinder to replace the existing grinder. The existing grinder was purchased $2$ years ago at an installed cost of $ $60$ comma $600$; it was being depreciated under MACRS using a$5-$year recovery period. The existing grinder is expected to have a usable life of $5$ more years. The new grinder costs $ $106$ comma $500$ and requires $ $5$ comma $400$ in installation$$ 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 $ $70$ comma $800$ without incurring any removal or cleanup costs. To support the increased business resulting from purchase of the new$$ grinder, accounts receivable would increase by $ $39$ comma $400,$ inventories by $ $30$ comma $500,$ and accounts payable by $ $57$ comma $700.$ At the end of $5$ years, the existing grinder would have a market value of$$ zero; the new grinder would be sold to net $ $28$ comma $600$ after removal and cleanup costs and before taxes. The firm is subject a $21\%$ tax rate. The estimated earnings before$$ depreciation, interest, and taxes over the five years for both the new and the existing grinder are shown in the following table LOADING.... $($Table LOADING... contains the applicable MACRS depreciation$$ percentages.$)$

a$.$ Calculate the initial cash flow associated with the replacement of the existing grinder by the new one.

b$.$ Determine the periodic 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.

d$.$ Depict on a time line the net incremental cash flows associated with the proposed grinder replacement decision.