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Trident Limited is considering replacing an old machine. The new machine is expected improve output which would increase additional net cash flows of s100,000 (before depreciation, taxes and the savings mentioned in the following paragraph). The new machine will also require one less part-time employee which would result in pre-tax savings of S35,000 per year. Maintenance costs are expected to be substantially lower with an annual pre-tax saving of S15,000 per year. Average accounts receivable will increase from $45,000 to $58,000 while accounts payable will increase by S8,000. Inventory is also expected increase by Assume that these changes are expected to occur immediately.

The old machine was originally purchased for $250,000 and has a book value of $50,000. The old machine could be sold today for $35,000 but if retained and operated for a further five years it would only be worth $10,000. The new machine currently costs $450,000 and requires $50,000 installation costs. In 5 years’ time the machine could be sold for $170,000, New Zealand taxation rules allow depreciation on a straight-line basis over 10 years; The company tax rate is 28%.

Calculate the initial investment, operating cash flows, and the terminal cash flow.

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