Clean Chips is a manufacturer of prototype chips based in Austin, Texas. Next year, in 2015, Clean Chips expects to deliver 535 prototype chips at an average price of $55,000. Clean Chips' marketing vice president forecasts growth of 65 prototype chips per year through 2021. That is, demand will be 535 in 2015, 600 in 2016, 665 in 2017, and so on. The plant cannot produce more than 525 prototype chips annually. To meet future demand, Clean Chips must either modernize the plant or replace it. The old equipment is fully depreciated and can be sold for $4,300,000 if the plant is replaced. It the plant is modernized, the costs to modernize it are to be capitalized and depreciated over the useful life of the updated plant. The old equipment is retained as part of the modernize alternative. The following data on the two options are available: EB (Click the icon to view information on the options) (Click the icon to view summarized cash flows for each option.) Click the icon to view the Future Value of $1 factors.) (Click the icon to view the Future Value of Annuity of $1 factors.) (Click the icon to view the Present Value of $1 factors.)(Click the icon to view the Present Value of Annuity of $1 factors) Read the requirements. Data Table Requirements disposal value, and net present value.) Modernize Replace 1 Sketch the after-tax cash inflows and outflows of the modernize and replace alternatives S 36,800,000 S 7,000,000 years 35,500 S 61,700,000 S 17,000,000 years 26,000 over the 2015 2021 period Calculate the net present value of the modernize and replace alternatives. Suppose Clean Chips is planning to build several more plants. It wants to have the most advantageous tax position possible. Clean Chips has been approached by Spain, Malaysia, and Australia to construct plants in their countries. Briefly describe in qualitative terms the income tax features that would be advantageous to Clean Chips. Initial investment in 2015 2. Terminal disposal value in 2021 3. Useful life Total annual cash operating cost per prototype chip S Clean Chips uses straight-line depreciation, assuming zero terminal disposal value. For simplicity, we assume no change in prices or costs in future years. The investment will be made at the beginning of 2015, and l transactions thereafter occur on the last day of the year. Clean Chips' required rate of return is 10% There is no difference between the modernize and replace alternatives in terms of required working capital. Clean Chips pays a 30% tax rate on all income. Proceeds from sales of equipment above book value are taxed at the same 30% rate. Print Done PrintDone Reference Modernize Alternative Before Tax Cash Inflows and Outflows Units Net Cash Proceeds from Initial Investments $ (36,800,000) Year Sold Contributions Sale of Equipment Jan 1, 2015 Dec 31, 2015 Dec 31, 2016 Dec 31, 2017 Dec 31, 2018 Dec 31, 2019 Dec 31, 2020 Dec 31,2021 0,432,500 11,700,000 12,967,500 4,235,000 15,502,500 16,770,000 18,037,500 Replace Alternative - Before Tax Cash Inflows and Outflows 535 S 600 665 730 795 860 925 7,000,000 Units Net Cash Initial Investments S (61,700,000)S Proceeds from Year Sold Contributions Sale of Equipment Jan 1, 2015 Dec 31, 2015 Dec 31, 2016 Dec 31, 2017 Dec 31, 2018 Dec 31, 2019 Dec 31, 2020 Dec 31, 2021 4,300,000 535 S 600 665 730 795 860 925 5,515,000 7,400,000 9,285,000 21,170,000 23,055,000 24,940,000 26,825,000 17,000,000 Requirements 1 and 2. Sketch the after-tax cash inflows and outflows of the modernize and replace alternatives over the 2015- 2021 period and calculate the net present value for each alternative. Let's begin with the modernize alternative. Start by computing the present value of the after-tax cash flows from operations, then calculate the present value of the after-tax cash savings from depreciation and the terminal disposal value, and finally, determine the total net present value (NPV) of the investment for the modernize alternative. (Round interim calculations and your final answers to the nearest whole dollar. Use a minus sign or parentheses for a negative net present value.) Net Cash Total Present PV factor Inflow Value Present value of net cash flows After-tax cash flows from operations: Dec 31, 2015 Dec 31, 2016 Dec 31, 2017 Dec 31, 2018 Dec 31, 2019 Dec 31, 2020 Dec 31, 2021 Present value of after-tax cash flow from sale of equipment Present value of annuity of equal income tax cash savings from annual depreciation Net initial investment Net present value Next, compute the net present value for the replace alternative. Start by computing the present value of the after-tax cash lows from operations, then calculate the present value of the after-tax cash savings from depreciation and the terminal disposal value, and finally, determine the total NPV of the investment under the replace alternative. (Round interim calculations and your final answers to the nearest whole dollar. Use a minus sign or parentheses for a negative net present value.) Net Cash Total Present Clean Chips is a manufacturer of prototype chips based in Austin, Texas. Next year, in 2015, Clean Chips expects to deliver 535 prototype chips at an average price of $55,000. Clean Chips' marketing vice president forecasts growth of 65 prototype chips per year through 2021. That is, demand will be 535 in 2015, 600 in 2016, 665 in 2017, and so on. The plant cannot produce more than 525 prototype chips annually. To meet future demand, Clean Chips must either modernize the plant or replace it. The old equipment is fully depreciated and can be sold for $4,300,000 if the plant is replaced. It the plant is modernized, the costs to modernize it are to be capitalized and depreciated over the useful life of the updated plant. The old equipment is retained as part of the modernize alternative. The following data on the two options are available: EB (Click the icon to view information on the options) (Click the icon to view summarized cash flows for each option.) Click the icon to view the Future Value of $1 factors.) (Click the icon to view the Future Value of Annuity of $1 factors.) (Click the icon to view the Present Value of $1 factors.)(Click the icon to view the Present Value of Annuity of $1 factors) Read the requirements. Data Table Requirements disposal value, and net present value.) Modernize Replace 1 Sketch the after-tax cash inflows and outflows of the modernize and replace alternatives S 36,800,000 S 7,000,000 years 35,500 S 61,700,000 S 17,000,000 years 26,000 over the 2015 2021 period Calculate the net present value of the modernize and replace alternatives. Suppose Clean Chips is planning to build several more plants. It wants to have the most advantageous tax position possible. Clean Chips has been approached by Spain, Malaysia, and Australia to construct plants in their countries. Briefly describe in qualitative terms the income tax features that would be advantageous to Clean Chips. Initial investment in 2015 2. Terminal disposal value in 2021 3. Useful life Total annual cash operating cost per prototype chip S Clean Chips uses straight-line depreciation, assuming zero terminal disposal value. For simplicity, we assume no change in prices or costs in future years. The investment will be made at the beginning of 2015, and l transactions thereafter occur on the last day of the year. Clean Chips' required rate of return is 10% There is no difference between the modernize and replace alternatives in terms of required working capital. Clean Chips pays a 30% tax rate on all income. Proceeds from sales of equipment above book value are taxed at the same 30% rate. Print Done PrintDone Reference Modernize Alternative Before Tax Cash Inflows and Outflows Units Net Cash Proceeds from Initial Investments $ (36,800,000) Year Sold Contributions Sale of Equipment Jan 1, 2015 Dec 31, 2015 Dec 31, 2016 Dec 31, 2017 Dec 31, 2018 Dec 31, 2019 Dec 31, 2020 Dec 31,2021 0,432,500 11,700,000 12,967,500 4,235,000 15,502,500 16,770,000 18,037,500 Replace Alternative - Before Tax Cash Inflows and Outflows 535 S 600 665 730 795 860 925 7,000,000 Units Net Cash Initial Investments S (61,700,000)S Proceeds from Year Sold Contributions Sale of Equipment Jan 1, 2015 Dec 31, 2015 Dec 31, 2016 Dec 31, 2017 Dec 31, 2018 Dec 31, 2019 Dec 31, 2020 Dec 31, 2021 4,300,000 535 S 600 665 730 795 860 925 5,515,000 7,400,000 9,285,000 21,170,000 23,055,000 24,940,000 26,825,000 17,000,000 Requirements 1 and 2. Sketch the after-tax cash inflows and outflows of the modernize and replace alternatives over the 2015- 2021 period and calculate the net present value for each alternative. Let's begin with the modernize alternative. Start by computing the present value of the after-tax cash flows from operations, then calculate the present value of the after-tax cash savings from depreciation and the terminal disposal value, and finally, determine the total net present value (NPV) of the investment for the modernize alternative. (Round interim calculations and your final answers to the nearest whole dollar. Use a minus sign or parentheses for a negative net present value.) Net Cash Total Present PV factor Inflow Value Present value of net cash flows After-tax cash flows from operations: Dec 31, 2015 Dec 31, 2016 Dec 31, 2017 Dec 31, 2018 Dec 31, 2019 Dec 31, 2020 Dec 31, 2021 Present value of after-tax cash flow from sale of equipment Present value of annuity of equal income tax cash savings from annual depreciation Net initial investment Net present value Next, compute the net present value for the replace alternative. Start by computing the present value of the after-tax cash lows from operations, then calculate the present value of the after-tax cash savings from depreciation and the terminal disposal value, and finally, determine the total NPV of the investment under the replace alternative. (Round interim calculations and your final answers to the nearest whole dollar. Use a minus sign or parentheses for a negative net present value.) Net Cash Total Present