Existing machine

Purchased 3 years ago

Cost=22,000

Installation= 3000

Depreciation=3 years using the MACRS - 5 year

Recovery schedule

Current market value=10,000

Five year usable life remaining

Proposed machine

Cost= 45,000

Installation = 3000

Depreciation using MACRS 5-year recovery schedule

Five year usable life expected

The firm estimate the revenue and expenses for the proposed and existing equipment to be shown in the following table:

Proposed machine                                                                                                      Existing Machine

Year      Revenue               Expenses                                                                 year          Revenue         Expenses

1                 62000               42000                                                                    1              47000                    27000

2                 68200               44100                                                                    2              50800                    29200

3                 75000               46300                                                                    3              54300                    32000

4                 82500               48600                                                                    4              57600                    35300

5                 78000               51000                                                                    5              60500                    39400

The firm pays 40%taxes on income. Their firm's cost of capital is percent 14%. All dollar denominated answers are to be shown to the nearest dollar. Prepare the schedule /table of incremental cash flow for the proposed replacement project.