REPLACEMENT ANALYSIS The Bigbee Bottling Company is contemplating the replacement of one of its bottling machines...

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REPLACEMENT ANALYSIS The Bigbee Bottling Company is contemplating the replacement of one of its bottling machines with a newer and more efficient one. The old machine has a book value of $575,000 and a remaining useful life of 5 years. The firm does not expect to realize any return from scrapping the old machine in 5 years, but it can sell it now to another firm in the industry for $235,000. The old machine is being depreciated by $115,000 per year, using the straight-line method. The new machine has a purchase price of $1,175,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $130,000. The applicable depreciation rates are 20%, 32%, 19%, 12%, 11%, and 6%. It is expected to economize on electric power usage, labor, and repair costs, as well as to reduce the number of defective bottles. In total, an annual savings of $225,000 will be realized if the new machine is installed. The company's marginal tax rate is 35%, and it has a 12% WACC.  What initial cash outlay is required for the new machine? Round your answer to the nearest dollar. Negative amount should be indicated by a minus sign. $ Calculate the annual depreciation allowances for both machines and compute the change in the annual depreciation expense if the replacement is made. Round your answers to the nearest dollar.    Year Depreciation Allowance, New Depreciation Allowance, Old Change in Depreciation   1 $ $ $   2      3      4      5        What are the incremental net cash flows in Years 1 through 5? Round your answers to the nearest dollar.    Year 1 Year 2 Year 3 Year 4 Year 5   $ $ $ $ $     Should the firm purchase the new machine? -Select-YesNoItem 22  Khare to read the book Replacement Analysis EPLACEMENT ANALYSIS Bebe Betting Company is contemplating the replacement of one of its bottling machines with a newer and more efficient one. The old machine has a book value of $575,000 and maining use life of 5 years. The firm does not expect to realize any return from scrapping the old machine in 5 years, but it can sell it now to another form in the industry for $225. d machine is being depreciated by $115.000 per year, using the straight line method new machine has a purchase price of $1,175,000, an estimated useful life and MACRS dass life of 5 years, and an estimated salvage value of $10,000. The applicable depreciato re 205, 10, 129, 119, and it is expected to economize an electric power usage, labor, and repair costs, as well as to reduce the number of defective bottles. In total, a avings of $225,000 wil be realized if the new machine is installed. The company's marginal tax rates 35%, and it has a 120 WACC. a. What initia cash outlay is required for the new machine Round your answer to the nearest dollar Negative amount should be indicated by a minus sign 6. Calculate the annual depreciation allowances for both machines and compute the change in the annual depreciation expense if the replacement is made. Round your answers nearest dollar Year Decreation Depreciation Change in Allowance Allowance, Did Depreciation comwag a WAL What in tal cash outlay is required for the new machine Round your answer to the nearest dolar Negative amount should be indicated by a minus sign D. Calculate the annual depreciation allowances for both machines and compute the change in the annual depreciation expense if the replacement is made. Round yo nearest dolac Year Depreciation Depreciation Change in Allowance, Alonce, Old Depreciation c. What are the incrementalnet cash flows in Years 1 through 57 Round your answers to the nearest dollar. Year 2 Year 3 Year 4 d. Should the firm purchase the new machine? Support your answer the input in the h i ll

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&shy;SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE  &copy; v 1x ENG 05-09 24-03-2020 - 27 X IM662 IN 10 IP Q R S T A 662 663 664 665 - X fix IK I L IM BIGBEE note depreciation per year on old machine book value = sale price = Loss on sale = tax saving on loss on sale = 115000 575000 235000 340000 119000 667 35% tax 670 less less add 671 672 cost of new machine sale value of old machine tax saving on sale of old machine working capital 1175000 235000 119000 673 821000 A intial cash flow at year 0 -821000 674 675 676 677 678 679 note year depreciation rates cost = 1175000 depreciation ($) old machine depreciation 20.00% 32.00% 19.00% 12.00% 11.00% 682 change in depreciation A-B 115000 120000 115000 261000 115000 108250 115000 26000 115000 14250 235000 376000 223250 141000 129250 683 684 685 ... HPR GMAM EAC MACRS RELEVANT MI-np-ir NPV BETA LEVERED REPLACEMENT BOND OPTION TO WAIT STEIN indiffEPS EBIT LEASE SLM GOLF ... : @ v 1x 05-09 ENG 24-03-2020 - 27 X IR708 IP Q R IS IT A 687 688 689 690 691 692 U IKIL IM I N 10 &#1085;&#1100; TOTAL INCREASE IN EARNINGS = 225000 incremental net cash flows year EARNINGS(1-t) + change in depreciation*(t) 1 225000*(1-0.35) + 120000*(0.35) 2 225000*(1-0.35) + 261000*(0.35) 3 225000*(1-0.35) + 108250*(0.35) 4 225000*(1-0.35) + 26000*(0.35) 5 225000*(1-0.35) + 14250*(0.35) + AFTER TAX SALVAGE ROUNDED 188250 237600 184138 155350 260413 [SEE NOTE FOR AFTER TAX SALVAGE] 694 695 696 697 70500 698 699 700 701 calcualtion of NPV year cash flow pv factor @ 12% pv of cfat 0 -821000 1 1 188250.00 0.8929 2 237600.00 0.7972 3 184137.50 0.7118 4 155350.00 0.6355 5 260412.50 0.5674 NPV -821000 168080.36 189413.27 131065.44 98727.73 147765.05 -85948 NOTE BOOK VALUE OF NEW MACHINE (1175000 X 6%] SALVAGE VALUE PROFIT ON SALE TAX ON PROFIT ON SALE AFTER TAX SALVAGE VALUE (125000 - 19075] 702 130000 59500 20825 109175 35% 704 705 706 707 AS NPV IS NEGATIVE, REPLACEMENT SHOULD NOT BE DONE NEW MACHINE SHOULD NOT BE PURCHASED 708 709 710 1 IF THE EXPECTED LIFE DECREASES, THEN LESS CASHFLOWS WILL BE AVAILABLE AND SO NPV WILL DECREASE 2 IF WACC INCREASES, THEN ALSO NPV WILL DECREASE ...HPR GMAM EAC MACRS RELEVANT MI-np-ir NPV BETA LEVERED REPLACEMENT BOND OPTION TO WAIT STEIN indiffEPS EBIT LEASE SLM GOLF ... : .

Year 1	Year 2	Year 3	Year 4	Year 5
$	$	$	$	$

REPLACEMENT ANALYSIS The Bigbee Bottling Company is contemplating the replacement of one of its bottling machines...

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Year	Depreciation Allowance, New	Depreciation Allowance, Old	Change in Depreciation
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