2. (30 pts) Celgene Bioscienceshjjh has a contract manufacturing project currently underway.They project is scheduled to last 5 more years. They are considering replacing a piece ofequipment on the manufacturing line. The existing piece of equipment is 3 years old, wasoriginally purchase for $150,000, is projected to have no salvage value. It was depreciatedstraight-line over 2 years. Today management believes they can sell it for $75,000. The newpiece of equipment will cost $200,000, have a salvage value of $50,000, and be depreciatedover 3 years. The better efficiencies of the new equipment should reduce maintenance andoperating costs by $25,000 per year. Management plans to hold the new piece ofequipment for the remainder of the project and sell it for its salvage value at the end of 5years. The firms marginal tax rate is 20% and the firms cost of capital is 10%.a. (15 pts) What are the cash flows of the project?b. (15 pts) Should the firm undertake the project? Why or why notnnj

2. (30 pts) Celgene Biosciences has a contract manufacturing project currently underway. They project is scheduled to last 5 more years. They are considering replacing a piece of equipment on the manufacturing line. The existing piece of equipment is 3 years old, was originally purchase for $150,000, is projected to have no salvage value. It was depreciated straight-line over 2 years. Today management believes they can sell it for $75,000. The new piece of equipment will cost $200,000, have a salvage value of $50,000, and be depreciated over 3 years. The better efficiencies of the new equipment should reduce maintenance and operating costs by $25,000 per year. Management plans to hold the new piece of equipment for the remainder of the project and sell it for its salvage value at the end of 5 years. The firm's marginal tax rate is 20% and the firm's cost of capital is 10%. a. (15 pts) What are the cash flows of the project? b. (15 pts) Should the firm undertake the project? Why or why not? 2. (30 pts) Celgene Biosciences has a contract manufacturing project currently underway. They project is scheduled to last 5 more years. They are considering replacing a piece of equipment on the manufacturing line. The existing piece of equipment is 3 years old, was originally purchase for $150,000, is projected to have no salvage value. It was depreciated straight-line over 2 years. Today management believes they can sell it for $75,000. The new piece of equipment will cost $200,000, have a salvage value of $50,000, and be depreciated over 3 years. The better efficiencies of the new equipment should reduce maintenance and operating costs by $25,000 per year. Management plans to hold the new piece of equipment for the remainder of the project and sell it for its salvage value at the end of 5 years. The firm's marginal tax rate is 20% and the firm's cost of capital is 10%. a. (15 pts) What are the cash flows of the project? b. (15 pts) Should the firm undertake the project? Why or why not