The Bigbee Bottling Company is contemplating the replacement of one of its bottling machines with a...

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The Bigbee Bottling Company is contemplating the replacement ofone of its bottling machines with a newer and more efficient one.The old machine has a book value of $650,000 and a remaining usefullife of 5 years. The firm does not expect to realize any returnfrom scrapping the old machine in 5 years, but it can sell it nowto another firm in the industry for $280,000. The old machine isbeing depreciated by $130,000 per year, using the straight-linemethod. The new machine has a purchase price of $1,150,000, anestimated useful life and MACRS class life of 5 years, and anestimated salvage value of $130,000. The applicable depreciationrates are 20%, 32%, 19%, 12%, 11%, and 6%. It is expected toeconomize on electric power usage, labor, and repair costs, as wellas to reduce the number of defective bottles. In total, an annualsavings of $220,000 will be realized if the new machine isinstalled. The company's marginal tax rate is 35%, and it has a 12%WACC.
a What initial cash outlay is required for the new machine?Round your answer to the nearest dollar. Negative amount should beindicated by a minus sign.
b Calculate the annual depreciation allowances for both machinesand compute the change in the annual depreciation expense if thereplacement is made. Round your answers to the nearest dollar. YearDepreciation Allowance, New Depreciation Allowance, Old Change inDepreciation 1 $ $ $ 2 3 4 5
c 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 Year4 Year 5 $ $ $ $ $
d Should the firm purchase the new machine? Yes/ No

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The Bigbee Bottling Company is contemplating the replacement ofone of its bottling machines with a newer and more efficient one.The old machine has a book value of $650,000 and a remaining usefullife of 5 years. The firm does not expect to realize any returnfrom scrapping the old machine in 5 years, but it can sell it nowto another firm in the industry for $280,000. The old machine isbeing depreciated by $130,000 per year, using the straight-linemethod. The new machine has a purchase price of $1,150,000, anestimated useful life and MACRS class life of 5 years, and anestimated salvage value of $130,000. The applicable depreciationrates are 20%, 32%, 19%, 12%, 11%, and 6%. It is expected toeconomize on electric power usage, labor, and repair costs, as wellas to reduce the number of defective bottles. In total, an annualsavings of $220,000 will be realized if the new machine isinstalled. The company's marginal tax rate is 35%, and it has a 12%WACC.a What initial cash outlay is required for the new machine?Round your answer to the nearest dollar. Negative amount should beindicated by a minus sign.b Calculate the annual depreciation allowances for both machinesand compute the change in the annual depreciation expense if thereplacement is made. Round your answers to the nearest dollar. YearDepreciation Allowance, New Depreciation Allowance, Old Change inDepreciation 1 $ $ $ 2 3 4 5c 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 Year4 Year 5 $ $ $ $ $d Should the firm purchase the new machine? Yes/ No