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galveston Shipyards is considering the replacement of an eight-year-old riveting machine with a new one that will increase earnings before depreciation and taxes from $27,000 to $54,000 per year. The new machine will cost $82,500, and it will have an estimated life of eight years and no salvage value. The new machine will be depreciated over its 5-year MACRS recovery period. The firms required rate of retune is 12 percent. The old machine has been fully depreciated and has no salvage value. Should the old revoting machine be replaced by the new one? I. Initial investment outlay: 2013, Cost of new asset $(9500), Shipping and installation (500), Increase in net working capital (4000)= Initial investment (14,000). II. Supplemental Operating cash flow- Sales revenues 2014 $30,000, 2015 $30,000, 2016 $30,000, 2017 $30,000. Variable costs (60% of sales) 2014 (18,000), 2015 (18,000), 2016, (30,000), 2017, (18,000). Fixed Costs for 2014-2017 (5000). Depreciation on new equipment for 2014 (2000), 2015 (3200), 2016 (1900) 2017 (1200). Earning before taxes (EBT) 2014 (5000), 2015 (3800), 2016 (5100), 2017 (5800). Taxes (40%) (2000), 2015 (1520), 2016 (2040), 2017 (2320). Net income 2014 (3000) 2015 (2280) 2016 (3060) 2017 (3480). Add back depression 2014 (2000), 2015 (3200) 2016 (1900) 2017 (1200). Supplemental operating cash flows 2014 (5000), 2015 (5480) 2016 (4960) 2017 (4680). TERMINAL CASH FLOW: Return of net working capital 2017 (4000), Net salvage value (1880), Terminal cash flow (5880). INCRMENTAL CASH FLOWS: Total net cash flow per period: 2013 (14,000), 2014 (5000), 2015 (5480), 2016 (4960) 2017 (10560). After you have the cash flows for each year of the life of the project, then calculate the net present value by inputting these cash flows in your financial calculator and using 12% as the rate of return. Please show your work.

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