Central Laundry and Cleaners is considering replacing an existing piece of machinery…

Use the following MACRS Depreciation Rates in all of the problems. Year 1: 20%, Year 2: 32%, Year 3: 19%, Year 4: 12%, Year 5: 11%, Year 6: 6% 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 $50,000, and this amount was being depreciated under MACRS using a 5-year recovery period. The machine being considered costs $76,000 and requires $4,000 in installation costs. The new machine would be depreciated under MACRS using a 5-year recovery period. The old machine can currently be sold for $55,000 without incurring any removal or cleanup costs. The firm pays 40% taxes on both ordinary income and capital gains. The firm’s cost of capital is 12%. The revenues and expenses (excluding depreciation) associated with the new and the old machine for the next 5 years are given in the table below. a. Calculate the initial investment associated with replacement of the old machine by the new one. b. Determine the incremental operating cash inflows associated with the proposed replacement. (Note: Be sure to consider the depreciation in year 6.) c. Calculate the NPV, IRR, MIRR, Payback and Profitability Index. For this problem use the present value interest factors (PVIFs) to calculate the NPV. You will need the PV of the cash flows anyway in order to calculate the PI. The IRR and MIIRR functions can be used to calculate these metrics

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