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Question 2 (40 marks) One of Contact Manufacturing Ltd's main competitor, Torres Coffee Roaster is considering replacing one of its existing mach machine could be sold today for $30,000. The new, highly efficient machine costs $95,000. The new machine's depreciable life is 10 years and it can be sold for $14,0 Last year, Torres's current coffee roasting machine accounted for annual sale revenues of $50,000 and has annual costs of $ corporate tax rate is 40%. The additional savings and costs are forecasted to increase by inflation rate of 3% each year. Torres has an equity beta of 0.5. Its capital structure consists of equal amounts of equity and debt. The risk free rate is 6% Using the inputs suggested in the proposed investment, design an Excel financial model that can help to evaluate the repla allocated for the presentation and clarity of your model (e.g., if there are clear headings, clear arrangement for input cells, Answer the following questions using your Excel financial model: a. (5 marks) What is Torres Coffee Roaster's weighted average cost of capital (WACC)? b. (10 marks) Estimate the free cash flows of the replacement project. Prepare the cash flows of the old and new machine in the same fi c. (10 marks) What is the net present value (NPV) and internal rate of return (IRR) of the replacement investment? Should Torres Coffee d. (10 marks) Draw a line graph to explain the sensitivity of the NPV to changes in WACC? The graph should have a chart title, as well as x ing replacing one of its existing machine. Torres bought the machine 5 years ago for $90,000. It is being depreciated on a straight-line s 10 years and it can be sold for $14,000 at the end of year 10. The new machine will be depreciated to zero over 10 years via straight l of $50,000 and has annual costs of $25,000. The new machine will increase the sale revenues to $65,000 per year. The new machine by inflation rate of 3% each year. ity and debt. The risk free rate is 6%. The debt has a pre-tax yield of 10% and the expected rate of return on the market index is 18%. el that can help to evaluate the replacement project. The model should enable Torres Coffee Roaster to consider the replacement proje gs, clear arrangement for input cells, appropriate use of colors, have some degree of flexibility, generate warning messages for wrong u old and new machine in the same financial model. nt investment? Should Torres Coffee Roaster replace the old machine with the new, highly efficient machine based on NPV? How abou should have a chart title, as well as x- and y-axis labels. epreciated on a straight-line basis (prime cost method) over a 15-year life. The o over 10 years via straight line (prime cost) method. per year. The new machine will also increase operating costs by $3,000 per year. The on the market index is 18%. nsider the replacement project and forecast the net cash flows. 5 marks will be rning messages for wrong user inputs, etc.). e based on NPV? How about IRR? Do both NPV and IRR lead to the same decision