Score: 0 of 12 pts 5 of 5 (3 complete) HW Score: 54.62%, 21.3 of 39 pts P11-17 (similar to) Question Help IntegrativeDetermining relevant 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 $60,300; 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 $108,700 and requires $4,600 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 $69,200 without incurring any removal or cleanup costs. To support the increased business resulting from purchase of the new grinder, accounts receivable would increase by $39,600, inventories by $29,500, and accounts payable by $58,000. At the end of 5 years, the existing grinder would have a market value of zero; the new grinder would be sold to net $29,000 after removal and cleanup costs and before taxes. The firm is subject a 40% tax rate. The estimated earnings before depreciation, interest, and taxes over the 5 years for both the new and the existing grinder are shown in the following table 5. (Table contains the applicable MACRS depreciation percentages.) a. Calculate the initial investment associated with the replacement of the existing grinder by the new one. b. Determine the operating cash inflows 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 relevant cash flows associated with the proposed grinder replacement decision. - X i Data Table 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.) (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Cost of new asset $ Installation costs Total cost of new asset $ Enter any number in the edit fields and then click Check Answer. Year 1 2 3 4 5 Earnings before depreciation, interest, and taxes New grinder Existing grinder $43,700 $25,500 43,700 23,500 43,700 21,500 43,700 19,500 43,700 17,500 14 parts remaining CI er Jis the fore being has a using rinder, be sold e existing ssociated flows ass expected nt cash flo 7 years 10 years (Click on the icon here in order to copy the contents of the data ble below into a spreadsheet.) Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year Recovery year 3 years 5 years 1 33% 20% 14% 10% 45% 32% 2596 18% 15% 19% 18% 14% 7% 12% 12% 12% 12% 9% 9% 5% 9% 8% 7 7% 8 6% 9 10 11 4% associated ON elow. (Roul fields and the Print Done Score: 0 of 12 pts 5 of 5 (3 complete) HW Score: 54.62%, 21.3 of 39 pts P11-17 (similar to) Question Help IntegrativeDetermining relevant 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 $60,300; 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 $108,700 and requires $4,600 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 $69,200 without incurring any removal or cleanup costs. To support the increased business resulting from purchase of the new grinder, accounts receivable would increase by $39,600, inventories by $29,500, and accounts payable by $58,000. At the end of 5 years, the existing grinder would have a market value of zero; the new grinder would be sold to net $29,000 after removal and cleanup costs and before taxes. The firm is subject a 40% tax rate. The estimated earnings before depreciation, interest, and taxes over the 5 years for both the new and the existing grinder are shown in the following table 5. (Table contains the applicable MACRS depreciation percentages.) a. Calculate the initial investment associated with the replacement of the existing grinder by the new one. b. Determine the operating cash inflows 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 relevant cash flows associated with the proposed grinder replacement decision. - X i Data Table 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.) (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Cost of new asset $ Installation costs Total cost of new asset $ Enter any number in the edit fields and then click Check Answer. Year 1 2 3 4 5 Earnings before depreciation, interest, and taxes New grinder Existing grinder $43,700 $25,500 43,700 23,500 43,700 21,500 43,700 19,500 43,700 17,500 14 parts remaining CI er Jis the fore being has a using rinder, be sold e existing ssociated flows ass expected nt cash flo 7 years 10 years (Click on the icon here in order to copy the contents of the data ble below into a spreadsheet.) Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year Recovery year 3 years 5 years 1 33% 20% 14% 10% 45% 32% 2596 18% 15% 19% 18% 14% 7% 12% 12% 12% 12% 9% 9% 5% 9% 8% 7 7% 8 6% 9 10 11 4% associated ON elow. (Roul fields and the Print Done