Replacement Analysis

DeYoung Entertainment Enterprises is considering replacing the latex molding machine it uses to fabricate rubber chickens with a newer, more efficient model. The old machine has a book value of $$800,000$ and a remaining useful life of $5$ years. The current machine would be worn out and worthless in $5$ years, but DeYoung can sell it now to a Halloween mask manufacturer for $$270,000.$ The old machine is being depreciated by $$160,000$ per year for each year of its remaining life.

The new machine has a purchase price of $$1,170,000,$ an estimated useful life and MACRS class life of $5$ years, and an estimated salvage value of $$105,000.$ The applicable depreciation rates are $20\mathrm{.}00\%,32\mathrm{.}00\%,19\mathrm{.}20\%,11\mathrm{.}52\%,11\mathrm{.}52\%,$ and $5\mathrm{.}76\%.$ Being highly efficient, it is expected to economize on electric power usage, labor, and repair costs, and, most importantly, to reduce the number of defective chickens. In total, an annual savings of $$245,000$ will be realized if the new machine is installed. The company's marginal tax rate is $35\%$ and the project cost of capital is $16\%.$

What is the initial net cash flow if the new machine is purchased and the old one is replaced? Round your answer to the nearest dollar.

$

Calculate the annual depreciation allowances for both machines, and compute the change in the annual depreciation expense if the replacement is made. Do not round intermediate calculations. Round your answers to the nearest dollar.

Year Depreciation

Allowance, New Depreciation

Allowance, Old Change in

Depreciation

$1$ $

$234000$

$

$160000$

$

$74000$

$2$ $

$374400$

$

$160000$

$

$214400$

$3$ $

$224640$

$

$160000$

$

$64640$

$4$ $

$134784$

$

$160000$

$

$-25216$

$5$ $

$134784$

$

$160000$

$

$-25216$

What are the incremental net cash flows in Years $1$ through $5?$ Do not round intermediate calculations. Round your answers to the nearest dollar.

CF$1$ $

CF$2$ $

CF$3$ $

CF$4$ $

CF$5$ $

Should the firm purchase the new machine?

No

Support your answer. Do not round intermediate calculations. Round your answer to the nearest dollar.

NPV: $