Suppose that your current machine is outdated, as the Chief Financial Officer, you feel that the firm would benefit from replacing the current machine. You have estimated an increase in revenue of $35,000 and a savings in operating costs from $200,000 annually to $150,000 annually. The WACC is 10%. However, your required return for this project is 12%.

a. Using the following information, calculate the Incremental Cash Flows for the next 10 years. You can do this by hand or use Excel. Show your calculations.

Existing Machine Proposed Machine Cost $200,000 Cost Financing None Financing Installation Shipping Installation Shipping Training Training Change in inventory Age Depreciation Method Current Market Value Usable Life Remaining Salvage Value Tax Rate Recovery Year 1 234 5 6 Change in inventory 4 yrs Age 5 yr MACRS Depreciation Method $75,000 Current Market Value 10 yrs Usable Life Remaining $10,000 Salvage Value 40% Tax Rate 5 year MACRS Depreciation Schedule Percent Depreciation 20 19 G N N O U N 12 12 32 $294,000 Conventional $5,000 $1,000 $3,000 -$10,000 5 yr MACRS 10 yrs $50,000 40%