#Assume the weighted average cost of capital is 11%

Developing Relevant Cash Flows for Part-Time Student Company's Machine Renewal or Replacement Decision Mclovin, chief financial officer of Part-Time Student Company (PTSC), expects the firm's net profits after faxes for the next 5 years to be as shown in the following table. Year Net profits after taxes $100,000 $150,000 $200,000 $250,000 $320,000 Melovin is beginning to develop the relevant cash flows needed to analyze whether to renew or replace PTSC's only depreciable asset, a machine that originally cost $30,000, has a current book value of zero, and can now be sold for $20,000. (Note: Because the firm's only depreciable asset is fully depreciated...its book value is zero...its expected net profits after takes equal its operating cash inflows.) He estimates that at the end of 5 years. Mclovin plans to use the following information to develop the relevant cash flows for each of the alternatives. Alternative 1 Renew the existing machine at a total depreciable cost of $90,000. The renewed machine would have a 5-year usable life and depreciated under MACRS using a 5-year recovery period. Renewing the machine would result in the following projected revenues and expenses (excluding depreciation): Year Revenue $1,000,000 1,175.000 1,300,000 1,425,000 1,550,000 Expenses (excluding depreciation) $801,500 884,200 918,100 943,100 968.100 The renewed machine would result in an increased investment of $15,000 in net working capital. At the end of 5 years, the machine could be sold to net $8,000 before taxes. Alternative 2 Replace the existing machine with a new machine costing $100,000 and requiring installation costs of S10.000. The new machine would have a 5-year usable life and be depreciated under MACRS using a 5-year recovery period. The firm's projected revenues and expenses (excluding depreciation), if it acquires the machine, would be as follows: Year WN - Revenue $1,000,000 1,175,000 1,300,000 1.425,000 1.550,000 Expenses(excluding depreciation) $764,500 839,800 914,900 989,900 998,900 The new machine would result in an increased investment of $22,000 in net working capital. At the end of 5 years, the new machine could be sold to net $25,000 before taxes. The weighted average cost of capital will be given to your group when you email me or provide the names of your group to me in class; the marginal tax rate is 40%. Find the NPV, IRR, MIRR, payback and discounted payback for both alternatives. Which alternative should be selected? Explain