A machine currently in use was originally purchased 2 years ago for Rp 75,00,000. The machine is being depreciated under MACRS using a 5-year recovery period; it has 3 years of usable life remaining. The current machine can be sold today to net Rp 87,000,000 after removal and cleanup costs. A new machine, using a 3-year MACRS recovery period, can be purchased at a price of Rp 150,000,000. It requires Rp 10,000,000 to install and has a 3-year usable life. If the new machine is acquired, the investment in accounts receivable will be expected to rise by Rp 15,000,000, the inventory investment will increase by Rp 25,000,000, and accounts payable will increase by Rp 20,000,000. Earnings before depreciation, interest, and taxes are expected to be Rp 75,000,000 for each of the next 3 years with the old machine and to be Rp 100,000,000 in the first year and Rp 110,000,000 in the second and third years with the new machine. At the end of 3 years, the market value of the old machine will equal zero, but the new machine could be sold to net Rp 25,000,000 before taxes. The firm is subject to a 40% tax rate. Please calculate using Excel. a. Determine the initial investment associated with the proposed replacement decision. b. Calculate the incremental operating cash flows for years 1 to 4 associated with the proposed replacement. (Note: Only depreciation cash flows must be considered in year 4.) c. Calculate the terminal cash flow associated with the proposed replacement decision. (Note: This decision is made at the end of year 3.)

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