Activity: Replacement Analysis Q Search this course X Excel Online Structured Activity: Replacement Analysis The Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to shape guitar sides. The steamer has 6 years of remaining life. If kept the steamer will have depreciation expenses of $650 for 5 years and $325 for the sixth year. Its current book value is $3,575, and it can be sold on an Internet auction site for $4,150 at this time. If the old steamer is not replaced, it can be sold for $800 at the end of its useful life. Gilbert is considering purchasing the Side Steamer 3000, a higher-end steamer, which costs $11,000, and has an estimated useful life of 6 years with an estimated salvage value of $1,100. This steamer falls into the MACRS 5-years class, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The new steamer is faster and would allow for an output expansion, so sales would rise by $2,000 per year; even so, the new machine's much greater efficiency would reduce operating expenses by $1,600 per year. To support the greater sales, the new machine would require that inventories increase by $2,900, but accounts payable would simultaneously increase by $700. Gilbert's marginal federal-plus-state tax rate is 40%, and its WACC is 15%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Open spreadsheet Should it replace the old steamer? The old steamer should be replaced. What is the NPV of the project? Do not round Intermediate calculations. Round your answer to the nearest dollar $ ty: Project risk analysis Video Excel Online Structured Activity: Project risk analysis The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $6,500 and has an expected life of 3 years. Annual project cash flows begin 1 year after the initial investment and are subject to the following probability distributions: Project A Project B Probability Cash Flows Probability Cash Flows 0.2 $5,750 0.2 $0 0.6 $6,500 0.6 $6,500 0.2 $7,250 0.2 $19,000 BPC has decided to evaluate the riskier project at 11% and the less-risky project at 9%. The data has been collected in the Microsoft Excel Online fille below. Open the spreadsheet and perform the required analysis to answer the questions below. X Open spreadsheet a. What is each project's expected annual cash flow? Round your answers to two decimal places Project A: $ Project B: $ OTAP Q Search this Project risk analysis a. What is each project's expected annual cash flow? Round your answers to two decimal places. Project A: $ Project B: $ Project B's standard deviation (s) is $6,185.47 and its coefficient of variation (CV) is 0.80. What are the values of (CA) and (CV)? Round your answers to two decimal places b. Based on the risk-adjusted NPVs, which project should BPC choose? c. If you knew that Project B's cash flows were negatively correlated with the firm's other cash flow, but Project A's cash flows were positively correlated, how might this affect the decision? If Project B's cash flows were negatively correlated with gross domestic product (GDP), while A's cash flows were positively correlated, would that influence your risk assessment? activity: Capital budgeting criteria Excel Online Structured Activity: Capital budgeting criteria A company has a 13% WACC and is considering two mutually exclusive investments that cannot be repeated) with the following cash flows: 0 2 3 4 5 6 7 Project A Project B - $300 - $405 - $387 $135 -$193 $135 -$100 $135 $850 $600 $135 $600 $135 -$180 $0 $135 The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questons below Open spreadsheet a. What is each project's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations. Project A: $ Project B: $ b. What is each project's IRR? Round your answer to two decimal places. Project A: % Project B: % c. What is mach niert's MIRR? (Hint: Consider Period 7 as the end of Proiect B's life. Round vour answer to two decimal ninong Do not mund nur vity: Capital budgeting criteria c. What is each project's MIRR? (Hint: Consider Period 7 as the end of Project B's life.) Round your answer to two decimal places. Do not round your intermediate calculations. Project A: % Project B: % d. From your answers to parts a-c, which project would be selected? If the WACC was 18%, which project would be selected? e. Construct NPV profiles for Projects A and B. Round your answers to the nearest cent. Do not round your intermediate calculations. Negative value should be indicated by a minus sign Discount Rate NPV Project A $ NPV Project B $ 0% 5 $ $ 10 $ $ 12 $ $ 15 $ $ 18.1 $ $ Capital budgeting criteria e. Construct NPV profiles for Projects A and B. Round your answers to the nearest cent. Do not round your intermediate calculations. Negative value should be indicated by a minus sign. Discount Rate NPV Project A NPV Project B $ 0% $ 5 $ $ 10 $ $ 12 $ $ 15 $ $ 18.1 $ $ 24.29 $ 1. Calculate the crossover rate where the two projects' NPVs are equal. Round your answer to two decimal places. Do not round your intermediate calculations. 9. What is each project's MIRR at a WACC of 18%? Round your answer to two decimal places. Do not round your intermediate calculations. Project A: % Project B: %