7. Problem 12.16 Click here to read the eBook: Replacement Analysis REPLACEMENT ANALYSIS The Bigbee Battling Company is contemplating the replacement of ure of its boldirg machines with a newer and more eficient one. The old machine has a book value of $625,000 and a remaining useful life of 5 years. The firm does not expect to realize any return from scrapping the old machine in 5 years, but it can sell it now to another firm in the Industry for $280,000. The old machine is being depreciated by $125,000 per year, using the straight-line method The new machine has a purchase price of $1,200,000, an estimated useful life and MACRS class life of 5 years, and an estimated selvage value of $155,000. The applicable depreciation rates are 20%, 32%, 194, 124, 11% and 6%. It is expected to economize on electric power usage, labor, and repair costs, as well as to reduce the number of defective bottles. In total, an annual savings of 1235,000 will be realized if the new machine is installed. The company's marginal tax rate is 35%, and it has a 12% WACC. a. What initial cash out ay is required for the new machina? Round your answer to the nearest dallar. Negative amount shauld be indicated by a minus sign. b. Calculate the annual depreciation allowances for both machines and compute the change in the annual depreciation expense if the replacement is made. Round your answers to the nearest dollar. Year Depreciation Deprecation Change in Allowance, Allowance, Depreciation New Old c. What are the incremental net cash flows In Years I through 57 Round your answers to the nearest dollar. Year 1 Year 2 Year 3 Year 4 Year 5 d. Should the firm purchase the new machine? -Select- Support your answer. The input in the box below will not be graded, but may be reviewed and considered by your instructor. 4. In general, hon would each of the falk wing factors affect the investment decision, and how should each be treated 1. The expected of the existing machine decreases. The input in the box below will not be graded, but may be reviewed and considered by your instructor. 2. The WACC is not constant, but is increasing a Bigbaa adds more projects into its capital budget for the year. The input in the box below will not be graded, but may be reviewed and considered by your instructar