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Relevant cash flows-No 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 $51,800, 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 $76,800 and requires $4,300 in installation costs. The new machine would be depreciated under MACRS using a 5-year recovery period. The firm can currently sell the old machine for $55,700 without incurring any removal or cleanup costs. The firm 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 inflows associated with the proposed replacement. (Note: Be sure to consider the depreciation in year 6.) c. Depict on a time line the relevant cash flows found in parts (a) and (b) associated with the proposed replacement decision. i Data Table Data Table (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Year Revenue $749,800 749,800 749,800 749,800 749,800 New machine Expenses (excluding depreciation and interest) $719,500 719,500 719,500 719,500 719,500 Revenue $674,000 676,000 680,000 678,000 674,000 Old machine Expenses (excluding depreciation and interest) $659,900 659,900 659,900 659,900 659,900 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% 10 years 10% 18% 14% VOUWN+ Print Done 6% 4% Totals 100% 100% 100% 100% *These percentages have been rounded to the nearest whole percent to simplify calculations while 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. Print Done Relevant cash flows-No 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 $51,800, 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 $76,800 and requires $4,300 in installation costs. The new machine would be depreciated under MACRS using a 5-year recovery period. The firm can currently sell the old machine for $55,700 without incurring any removal or cleanup costs. The firm 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 inflows associated with the proposed replacement. (Note: Be sure to consider the depreciation in year 6.) c. Depict on a time line the relevant cash flows found in parts (a) and (b) associated with the proposed replacement decision. i Data Table Data Table (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Year Revenue $749,800 749,800 749,800 749,800 749,800 New machine Expenses (excluding depreciation and interest) $719,500 719,500 719,500 719,500 719,500 Revenue $674,000 676,000 680,000 678,000 674,000 Old machine Expenses (excluding depreciation and interest) $659,900 659,900 659,900 659,900 659,900 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% 10 years 10% 18% 14% VOUWN+ Print Done 6% 4% Totals 100% 100% 100% 100% *These percentages have been rounded to the nearest whole percent to simplify calculations while 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. Print Done