Net cash flows Central Laundry and Cleaners is considering replacing an existing piece of machinery with a more sophisticated machine. The old machine was purchased 3 years ago at a cost of $50,300, 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 $76,100 and requires $4,400 in installation costs. The new machine would be depreciated under MACRS using a 5-year recovery period. The firm can currently sell the old machine for $55,900 without incurring any removal or cleanup costs. The firm is subject to a tax rate of 21%. 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 cash flow associated with replacement of the old machine by the new one. b. Determine the periodic cash flows associated with the proposed replacement. (Note: Be sure to consider the depreciation in year 6.) c. Depict on a time line the net cash flows found in parts (a) and (b) associated with the proposed replacement decision. a. Calculate the initial cash flow associated with replacement of the old machine by the new one. Calculate the initial cash flow below: (Round to the nearest dollar.) Cost of new asset Installation costs Total cost of new asset Proceeds from sale of old asset Tax on sale of old asset Total proceeds, sale of old asset Initial cash flow 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 Year 1 2 3 4 5 $ Revenue $751,000 751,000 751,000 751,000 751,000 Expenses (excluding depreciation and interest) $719,400 719,400 719,400 719,400 719,400 Revenue $674,200 676,200 680,200 678,200 674,200 Expenses (excluding depreciation and interest) $659,500 659,500 659.500 659,500 659,500 (...) Data table (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Recovery year 1 2 3 4 5 6 7 8 3 years 33% 45% 15% 7% Percentage by recovery year 5 years 7 years 20% 14% 32% 25% 19% 18% 12% 12% 9% 12% 5% 9% 9% 4% Print 10 years 10% 18% 14% 12% 9 10 4% 11 100% 100% 100% 100% Totals *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-declining balance (200%) depreciation using the half-year convention. Done 9% 8% 7% 6% 6% 6% X