1 Alysias Dance Company, Inc , a manufacturer of dance and exercise apparel, is considering replacing an existing piece of equipment with a more sophisticated machine The following information is given Project Information Existing Machine Proposed Machine Cost $100,000 Cost $150,000 Purchased 2 years ago Installation $20,000 Depreciated with MACRS 5 year schedule Depreciated with MACRS 5 year schedule Current market value $105,000 The firm pays 40 taxes on ordinary income and capital gains The old machine will have no market (salvage) value after five more years of use The new machine can be sold for $40,000 after five years of use There is no change in working capital required for the project Calculate the following The initial investment The after tax incremental cash flows The terminal value (cash flows) The NPV and MIRR if the companys WACC is 9 4 Should they replace the old machine

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Posted on Jul 30, 2024

1. Alysias Dance Company, Inc., a manufacturer of dance and exercise apparel, is considering replacing an existing piece of equipment with a more sophisticated machine.

Alysias Dance Company, Inc., a manufacturer of dance and exercise apparel, is considering replacing an existing piece of equipment with a more sophisticated machine. The following information is given.

Project Information
Existing Machine	Proposed Machine
Cost = $100,000	Cost = $150,000
Purchased 2 years ago	Installation = $20,000
Depreciated with MACRS 5 year schedule	Depreciated with MACRS 5 year schedule
Current market value = $105,000

The firm pays 40% taxes on ordinary income and capital gains. The old machine will have no market (salvage) value after five more years of use. The new machine can be sold for $40,000 after five years of use. There is no change in working capital required for the project. Calculate the following:

1. The initial investment
1. The after-tax incremental cash flows
1. The terminal value (cash flows)
1. The NPV and MIRR if the companys WACC is 9.4%. Should they replace the old machine?