Atlantic Drydock is considering replacing an existing hoist with one of two newer, more efficient pieces of

equipment. The existing hoist is $3$ year old, cost $$32,000,$ and is being depreciated under MACRS using a $5-$year

recovery period. Although the existing hoist has only $3$ years of deprciation remaining under MACRS, it has a

remaining usable life of $5$ years. Hoist A$,$ one of the two possible replacement hoists, costs $$40,000$ to

purchase and $B$,000$ to install. It has a $5-$year usable life and will be depreciated under MACRS using a $5-$year

recovery period. Hoist B costs $$54,000$ to purchase and $$6,000$ to install. It also has a $5-$year usable life and will

be depreciated under MACRS using a $5-$year recovery period.

Increased investments in net working capital will accompany the decision to acquire hoist A or hoist B$.$

Purchase of hoist A would result in a $$4,000$ increase in net working capital; hoist B would result in a $$6,00$

increase in net working capital. The projected earnings before depreciation, interest, and taxes with each

alternative hoist and the existing hoist are given in the following table.

The existing hoist cancurrently be sold for $$18,000$ and will not incur any removal or cleanup costs. At the end

of $5$ years, the existing hoist can be sold to net $$1,000$ before taxes. Hoist A and $B$ can be sold to net $$12,000$

and $$20,000$ before taxes, respectively, at the end of the $5-$year period. The firm is subject to a $40\%$ tax rate.

$($a$)$ Calculate the initial investment associated with each alternative

$($b$)$ Calculate the incremental operating cash flows associated with eachalternative $($note: be sure consider

the depreciation in year $6.)$

$($c$)$ Calculate the terminal cashflow at the end of year $5$ associated with each alternative

$($d$)$ Depict on a time like the relevant cash flows associated with each alternative

$($e$)$ Calculate the NPV and IRR for each alternative and make decision assuming a $10\%$ cost of capital$\mathrm{.}1)$ Atlantic Drydock is considering replacing an existing hoist with one of two newer, more efficient pieces of equipment. The existing hoist is $3$ years old, cost $ $32,000,$ and is being depreciated under MACRS using a $5-$year recovery period. Although the existing hoist has only $3$ years $($years $4,5,$ and $6)$ of depreciation remaining under MACRS, it has a remaining usable life of $5$ years. Hoist A$,$ one of the two possible replacement hoists, costs $ $40,000$ to purchase and $ $8,000$ to install. It has a $5-$year usable life and will be depreciated under MACRS using a $5-$year recovery period. Hoist B costs $ $54,000$ to purchase and $ $6,000$ to install. It also has a $5-$year usable life and will be depreciated under MACRS using a $5-$year recovery period. Increased investments in net working capital will accompany the decision to acquire hoist A or hoist B$.$ Purchase of hoist A would result in a $ $4,000$ increase in net working capital; hoist B would result in a $ $6,000$ increase in net working capital. The projected earnings before depreciation, interest, and taxes with each alternative hoist and the existing hoist are given in the following table. The existing hoist can currently be sold for $ $18,000$ and will not incur any removal or cleanup costs. At the end of $5$ years, the existing hoist can be sold to net $ $1,000$ before taxes. Hoists A and B can be sold to net $ $12,000$ and $ $20,000$ before taxes, respectively, at the end of the $5-$year period. The firm is subject to a $40\%$ tax rate. a$.$ Calculate the initial investment associated with each alternative. b$.$ Calculate the terminal $($non$-$operating$)$ cash flow for each alternative. c$.$ Calculate the total cash flows associated with each alternative. d$.$ If the WACC for this investment is $13\%,$ calculate the NPV for each hoist.