Replacement decides versus expansion cash flows Tesla Systems has estimated the cash flows over the five-year lives of a project that will install new equipment to replace old equipment. If the firm makes this investment, it will sell the old equipment and receive after-tax proceeds of $1,560,000. If the firm not to undertake this project, the old equipment will remain in service and generate the cash flows listed in years 1 through 5, and it will have no value after five years. These cash flows are summarized in the following table: a. What are the incremental cash flows for this project? Assume the new equipment has no market value after 5 years. b. Instead, suppose that Tesla Systems' business is booming and that the new machine expands the firm's capacity. If they buy new equipment, they will generate cash flows as shown in the table, but they will leave the old equipment in service, and it will continue to generate $386,000 in cash flow in each of the next five years. Now what are the incremental project cash flows? a. Calculate the incremental cash flows for this replacement decision: (Enter a positive number for a cash inflow and a negative number for a cash outflow and round all numbers to the nearest dollar.) New Equipment Old Equipment Incremental Cash Flows (4,651,000) $ 550,000 $ Year 0$ 1 $ 2 $ 3 $ 4 5 $ $ 926,000 $ 1,342,000 $ 2,222,000 $ 3,403,000 $ $ $ $ $ $ $ Data table (Click on the following icon in order to copy its contents into a spreadsheet.) New equipment Old equipment -$4,651,000 New equipment cost Year 1 2 3 4 5 Print Operating cash flows $550,000 926,000 1,342,000 2,222,000 3,403,000 Done $386,000 386,000 386,000 386,000 386,000 - X

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Terminal cash flow: Replacement decision Russell Industries is considering replacing a fully depreciated machine that has a remaining useful life of 10 years with a newer, more sophisticated machine. The new machine will cost $207,000 and will require $29,200 in installation costs. It will be depreciated under MACRS using a 5-year recovery period (see the table for the applicable depreciation percentages). A $26,000 increase in net working capital will be required to support the new machine. The firm's managers plan to evaluate the potential replacement over a 4-year period. They estimate that the old machine could be sold at the end of 4 years to net $14,000 before taxes; the new machine at the end of 4 years will be worth $73,000 before taxes. Calculate the terminal cash flow at the end of year 4 that is relevant to the proposed purchase of the new machine. The firm is subject to a 21% tax rate. The terminal cash flow for the replacement decision is shown below: (Round to the nearest…

B2b Co. Is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $360,000 and hasa 12-year life and no salvage value. The expected annual income for each year from thos equipment follows. Compute the (a) annual net cash flow, (b) payback period, and (c) accounting rate of return for this equipment. $225,000 ,120,000, 30,000, 38,250, Income 36,750?