Schmidt A.G. is considering the replacement of three hand-loaded block milling machines with an

automatic milling machine. The three hand-loaded machines are only three years old and were

purchased at a total cost of DM 300,000. The useful life of the machines at the time of their purchase

was estimated to be fifteen years. The salvage value at the end of the fifteen years was estimated to be

zero.

Schmidt A.G. can continue to use three hand-loaded machines for their remaining twelve years. The

machines would continue to be depreciated at a rate of DM 20,000 per year. The depreciation expense

would reduce taxable income and, therefore, tax payments. Schmidt A.G. is taxed at a 40% rate.

Alternatively, Schmidt A.G. can replace the three hand-loaded machines with an automatic milling

machine. The new machine would have the same capacity as the combined capacity of the three handloaded machines, would have a twelve year useful life, would be depreciated for tax purposes at a rate

of DM 40,000 per year for twelve years, and would have zero salvage value. Cost of the automatic

milling machine is DM 480,000. The automatic machine would result in pre-tax labor savings, including

benefits, of DM 135,000 per year. Other out-of-pocket cash savings were estimated at DM 25,000 per year, before taxes. Based on the charge made for each square meter of floor space, the machining department would save DM 3,000 in the annual charge for space. If Schmidt A.G. acquires the automatic milling machine, it will sell the three hand-loaded machines immediately for a total price of DM 100,000. The loss of DM 140,000(the book value of DM 240,000 at the end of the third year minus the sale price off DM 100,000) resulting from the sale will be a taxdeductible expense. Please calculate the actual, after-tax cash flow for each of the two alternatives ? and What is the net present value of the actual cost flows for each of the two alternatives?