3. (10 marks) MGM560 Corporation is considering replacing an existing hoist with a new hoist N. The existing hoist is 5 years old, cost $32,000, and it has 3 years left of operations. It is depreciated under a straight-line depreciation method over 8 years recovery period. Hoist N costs $54,000 to purchase and $6000 to install. It has 3 years usable life and will be depreciated under a straight-line depreciation method using 3 years recovery period. Suppose the purchase of hoist N would result in a $6,000 increase in net working capital. The projected profits before depreciation and taxes with hoist N and the existing hoist are given in Table 1. The existing hoist can currently be sold for $19,000 and will not incur any removal or other costs. At the end of 3 years, the existing hoist can be sold to net $12,625 before taxes. Hoists N can be sold at $44,000 before taxes at the end of the 3-year period.|The firm is subject to a 40% tax rate on both ordinary income and capital gain. The company can raise funds to finance the initial investment via 50% debt and 50% equity. The company's current bond is traded at a price B = 800. It has a face value F = 1000 and a coupon rate c = 10%. The bond's maturity is 5 years. The company's current stock is traded at a price P = 100. Its expected dividend is D. = 10 and dividends are expected to grow at a constant rate g = 16.4%. Evaluate whether the company should replace its old machine by the new one using the net present value method; that is, find the initial investment, the change in operating cash flow, terminal cash flow, the weighted average cost of capital, and use all that to compute the NPV and make a decision. Keep one decimal place in the WACC calculations. PROFITS BEFORE DEPRECIATION AND TAXES IN ($) YEAR Year with hoist N with existing hoist 22,000 14,000 2 24,000 14,000 26,000 14,000 Table 1: MGM560 projected profits before depreciation and taxes for hoist A, B, and the existing hoist 1 3