ABC Engines, Inc. must develop the relevant cash flows for a replacement capital investment project that will take place at the beginning of 2020. The proposed equipment costs $500,000 and has installation costs of $20,000. This is a 5-year project from 2020 to 2024. The proposed equipment will be depreciated using a five-year recovery schedule and will be sold at the end f 2024 (The 5^th year) for $250,000. The existing equipment, which originally cost $350,000 when it was purchased at the beginning of 2017 and will be sold for $200,00 now or $50,000 at the end of 2024 (the 5^th year), has been depreciated using an MACRS five-year recovery schedule and three years of depreciation (2017, 2018 and 2019) has already been taken.

The new equipment is required to invest $27,000 net working capital at the beginning and the $27,000 net working capital will be recovered by the end 2024.

The firms weighted average cost of capital is 10%

The firm has a 40 percent tax rate.

The MACRS 5-year recovery schedule is as follows:

Year 1: 20%

Year 2: 32%

Year 3: 19%

Year 4: 12%

Year 5: 12%

Year 6: 5%

Please answer the following five questions. Must show your work.

1. Compute the after-tax cash flow on the sale of the existing equipment?
2. Compute the initial investment if the company decides to replace the existing equipment with the proposed equipment?
3. Compute the after-tax cash flow on the sale of the existing equipment at the end of 2024?
4. Compute the after-tax cash flow on the sale of the proposed equipment at the end of 2024?
5. Compute the terminal cash flow of this project?