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 $1,500 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. $ 8,861 X Replacement Analysis $8.50 Old Equipment Depreciation expense, Years 1 to 5 Depreciation expense, Year 6 Current book value Current market value Market value Year 6 $93.575 $4150 SADO New Equipment Estimated use in years) Purchase price Salvage value Year 6 Annual sales increase Annual reduction in operating expenses Initial increase in invertories It increase in accounts payable $11 000 $1,100 $2.000 $1,500 $2.900 5700 MACRS depreciation rates (5 year dess) 20.00% 32.00 19 20% Year 4 11.52% Year 5 11.52% Years 5.76% WACC 40.00% 15.00% Formulas Step 1: Calculation of investment to Sheet1 Mode Automatic 360 25 Step : Calculation of investment af 26 Purchase price of new equipment 27 Sale of old equipment 28 Tax on sale of old equipment 29 Change in net operating working capital 30 Total investment outay Formulas -$11,000 $4150 $230-822827-86) $1.000 -18-317 $3.020 SUMB20 829) 32 Sep 2. Calculation of an e x cashindows 33 Annual sales increase 34 Annual reduction in operating expenses 35 Anus increase in pre tax revenues $1.500 37 Aerox revenue increase 52.100 3351-822) 39 Sep 3: Calculation of annual depreciation tax wings Y Yo $3.520 2.2 You Your 5 $634 42 Old equipment 43 Change in annual depreciation $2,200 $1.50 $3.520 v 2870 52,112 0 $1462 $1.257 0 17 $1267 0 617 309 45 Annual preciation tax savings 5020 $1,148 546 247 247 $123 Formulas New equipment Od equipment Change in 17020512208312F20851200 depreciation $1.580 $142 3 817 817 33 Amal depreciation wings DEPA2 05622 4950522 - 00322 0522 55 Sp & C onference of place $2,100 $2.100 3585 58 A venue 5 Annual erection tax wings 50 Wong very 51 Savage van now urent 52 Toxonage of new coment 6) Opportunity cost of old woment 32.100 $123 200-016-017 $1.100 460- 0 10 54800 SUMO 2 8 68 Should the demand NPVISZC5464054 - F osna