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5. Red Hill Industrial Inc. is considering updating its production process years of a special project. The for the remaining four managers are considering replacing a machine which it purchased five years ago with an installed cost of $640,000. There is i year of depreciation remaining using the MACRS rates given below. The new machine, a CAR will require an additional $25,000 for TEX2, will cost $800,000 and delivery and installation. This new unit will also require training costs of approximately SI 1,000. The MACRS rates are 20%, 32%, 19%, 12%, 1 1%, and 6% for years l trough 6 respectively, and the marginal tax rate is 34%, The old machine is expected to be sold for approximately $70,000 today or $25,000 four years from now. It is expected the new machine could be sold in 4 years for $130,000. If RHI purchases the new equipment, annual revenues are expected to increase by about $52.000 per year, however, the expenses are expected to decrease from $42,000 with the old equipment to $15,000 with the new machine in the first year. Beyond that, the company's expenses are expected to be an additional $3,000 less per year. Since the new machine is expected to be more efficient, net operating working capital (mainly due to required inventory) is expected to fall by $4,000 in year 1, with no other changes expected, during the life of the project. At the end of the project all working capital is reversed a) (8 points) Calculate the year 0 cash flow which would be used for capital budgeting purposes. b) (8 points) Calculate the year 1 net cash flow which would be used for capital budgeting purposes. c) (8 points) Calculate the terminal value in year 4 at the end of the project

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