tive-Determining relevant cash flows Lombard Company is contemplating the purcha
ID: 2525736 • Letter: T
Question
tive-Determining relevant cash flows Lombard Company is contemplating the purchase of a new high-speed widget grinder to replace the existing grinder. The existing grinder was purchased 2 years ago at an installed cost of $64,500 it was being depreciated under MACRS using a 5-year recovery period. The existing grinder is expected to have a usable life of 5 more years. The new grinder costs $102,800 and requires $5 200 in installation costs, it has a 5-year usable life and Integrat d be depreciated under MACRS using a 5-year recovery period. Lombard can currently sell the existing grinder for $70,900 without incurring any removal or cleanup costs. To support the increased business resulting from purchase of the new grinder accounts receivable would increase by $40,000, inventories $30,900, and accounts payable by $58,400. At the end of 5 years, the existing grinder would have a market value of zero; the new grinder would be sold to net $30,000 after removal and cleanup costs and before taxes. The firm is subject a 40% tax rate. The estimated earnings before depreciation, interest and taxes over the S years for both the new and the existing grinder are shown in the following table El. (Table EEß contains the applicable MACRS depreciation percentages) a. Calculate the initial investment associated with the replacement of the existing grinder by the new one. b. Determine the incremental operating cash inflows associated with the proposed grinder replacement. (Note: Be sure to consider the depreciation in year 6.) c. Determine the terminal cash flow expected at the end of year $ from the proposed grinder replacement a. Calculate the initial investment associated with replacement of the oid machine by the new one. Calculate the initial investment 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 Change in working capital Initial investment $1 b. Deternine the incremental operating cash inflows associated with the proposed replacement. (Note: Be sure to consider the depreciation in year 6.) Calculate the cash flows with the old machine below: (Round to the nearest dolla)Explanation / Answer
The earnings table is not provided.
Cost of the new asset 102800 Installation costs 5200 Total cost of the new asset 108000 Proceeds from sale of old plant 70900 Tax on sale of old asset 15976 Total proceeds , sale of old asset -54924 Change in working capital 12500 Initial investment 65576Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.