Develop a capital budgeting schedule using the attached Cash Flow Estimation Worksheet (Excel spreadsheet) that should list all relevant cash flow items and amounts related to the replacement project over the 8-year expected life of the new pumping system.

- The equipment has a delivered cost of $112,000. An additional $4,000 is required to install and test the new system.

- The new pumping system is classified by the IRS as 5-year property, although it has an 8-year estimated service life. For assets classified by the IRS as 5-year property, the Modified Accelerated Cost Recovery System (MACRS) permits the company to depreciate the asset over 6 years at the following rates: Year 1 = 20 percent, Year 2 = 32 percent, Year 3 = 19 percent, Year 4 = 12 percent, Year 5 = 11 percent, Year 6 = 6 percent. At the 5 end of 8 years, the salvage value is expected to be around 5 percent of the original purchase price, so the best estimate of salvage value at the end of the equipment's service life is $5,600, with removal costs of $1,300.

- The existing pumping system was purchased at $45,000 eight years ago and has been depreciated on a straight-line basis over its economic life of 10 years. If the existing system is removed from the well and crated for pickup, it can be sold for $3,500 before tax. It will cost $1,000 to remove the system and crate it.

- At the time of replacement, the firm will need to increase its net working capital requirements by $4,200 to support inventories.

- The new pumping system offers lower maintenance costs and frees personnel who would otherwise have to monitor the system. In addition, it reduces product wastage because of a higher cooling efficiency. In total, it is estimated that the yearly savings will amount to $28,000 if the new pumping system is used.

- FPCs assets are financed by debt and common equity and has a target debt ratio of 25 percent. Its debt carries an interest rate of 6 percent. The firm has paid $2.00 of dividend per share this year (D0) and expects a constant dividend growth rate of 4 percent per year in the coming years. The firms current stock price, P0, is $26.00. The firm uses its overall weighted average cost of capital in evaluating average risk projects, and the replacement project is perceived to be of average risk.

- The firms federal-plus-state tax rate is 30 percent, and this rate is projected to remain fairly constant into the future

P19 xfx 1 FALCONVILLE PUMP COMPANY - CASH FLOW ESTIMATION WORK WORKSHEET 46 DECISION BASED DN YOUR ANALYSIS: 47 48 Sheet1 \begin{tabular}{l|l|l} \hline \end{tabular} Sheet2 Sheet3 + P19 xfx 1 FALCONVILLE PUMP COMPANY - CASH FLOW ESTIMATION WORK WORKSHEET 46 DECISION BASED DN YOUR ANALYSIS: 47 48 Sheet1 \begin{tabular}{l|l|l} \hline \end{tabular} Sheet2 Sheet3 +