question 4

Relevant cash flowsNo terminal value Central Laundry and Cleaners is considering replacing an existing piece of machinery wil a more sophisticated machine. The old machine was purchased 3 years ago at a cost of $50,200, and this amount was being depreciated under MACRS using a 5-year recovery period. The machine has 5 years of usable life remaining. The new machine that is being considered costs $75,600 and requires $4,400 in installation costs. The new machine would be depreciated under MACRS using 5-year recovery period. The firm can currently sell the old machine for $55,400 without incurring any removal or cleanup costs. The fimm is subject to a tax rate of 40%. The revenues and expenses (excluding depreciation and interest) associated with the new and the old machines for the next 5 years are given in the table (Table contains the applicable MACRS depreciation percentages.) Note: The new machine will have no terminal value at the end of 5 years. a. Calculate the initial investment associated with replacement of the old machine by the new one. b. Determine the incremental operating cash inflows associated with the proposed replacement. (Note: Be sure to consider the depreciation in year 6.) c. Depict on a time line the relevant cash flows found in parts (a) and (b) associated with the proposed replacement decision Cost of new asset Installation costs Total cost of new asset Proceeds from sale of old asset Tax on sale of old assot Total proceeds, sale of old assot Initial investment Enter any number in the edit fields and then click Check Answer 13 parts remaining Clear All Check Answer aco no considered costs $75.600 and requires $4.400 in installation costs. Data Table (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) New machine Old machine Expenses Expenses (excluding depreciation and (excluding depreciation and Year Revenue Interest) Revenue interest) 1 $750,200 $719,900 $673,600 $659,500 750,200 719,900 675,600 659,500 3 750,200 719,900 679,600 659,500 4 750,200 719,900 677,600 659,500 5 750,200 719,900 673,600 659,500 2 Print Done and then click Check Answer > rith is ng a rm em 10 years 16 leimilar tal 6 Data Table 16 pl in ya (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) su had Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes nivel Percentage by recovery year Recovery year 3 years 5 years 7 years ac 33% b. 20% 14% 10% dep 2 45% 32% 25% 18% c. 15% 19% 18% 14% 12% 12% 12% 12% 9% 9% 5% 9% 8% 9% 7% 8 4% 6% 9 6% 10 6% 11 4% Totals 100% 100% 100% 100% *These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-decining balance (2009) depreciation using the half-year convention Entel Print Done 13 7% 4 5 5 7 Done 1