Central Laundry & Cleaners is considering replacing an existing piece of machinery with a more sophisticated machine. The old machine was purchased three years ago at an installed cost 0f $50,000 and this amount is being depreciated under MACRS using a 5 year recovery period. The machine has 5 years of usable life remaining. The new machine under consideration costs $76,000 and requires $4,000 in installation costs. The new machine requires an additional $5,000 in net working capital and would also be depreciated under the 5- year MACRS recovery period. The firm can currently sell the old machine for $25,000 without incurring any removal or clean up costs. The firm is subject to a tax rate of 40%. The revenues and expenses (excluding depreciation and interest) associated with the new and old machines for the next five years are given below:

Year 1 2 3 4 5 Machine Expenses $660,000 $660,000 $660,000 $660,000 $660,000

New Revenue $750,000 $750,000 $750,000 $750,000 $750,000

Machine Expenses $720,000 $720,000 $720,000 $730,000 $745,000

Old Revenue $674,000 $676,000 $680,000 $678,000 $674,000

A. Calculate the initial investment for the project.

B. Calculate the incremental operating cash flow for the first year of the proposed replacement.