Excel

The Monchichi Company currently uses a machine that was purchased 4 years ago. This machine is being depreciated on a straight-line basis, and it has 5 years of remaining life. Its current book value is $5,000, and it can be sold for $6,500 at this time. Thus, the annual depreciation expense is $5000/5 = $1000 per year. If the old machine is not replaced, it can be sold for $500 at the end of its useful life. Monchichi is offered a replacement machine which has a cost of $25,000, an estimated useful life of 5 years, and an estimated salvage value of $2,500. This machine fall into the MACRS 5-year class so the applicable depreciation rates are 20%, 32%, 19%, 12%, 11%, and 6%. The replacement machine would permit an output expansion, so sales would rise by $5,000 per year; even so, the new machine's much greater efficiency would cause operating expenses to decline by $1,200 per year. The new machine would require that inventories be increased by $1,000, but accounts payable would simultaneously increase by $300. Monchichi's marginal federal-plus-state tax rate is 39%, and its WACC is 9% Please fill in the template below, calculate all project cash flows, and find the NPV of this replacement project. Old machine at time 0 Sales Price Book Valutax rate taxes New machine cost Salvage value, old machine Net cost of new machine time o time 1 time 2 time 3 time 4 time 5 Additional Revenue cost savings -New-Old Total additional cash flow A-T savings = cost savings (1 - Tax rate) A Depreciation = (New - Old) Depr'n tax savings = A Depreciation Tax rate Incremental CFs = A-T cost savings + Depr'n Capex/AT Salvage Value Change in NOWC Total project Cash flow Tax Rate WACC NPV 39% 9% new Sales Price Book Valu tax rate taxes ATSV old Sales Price Book Valutax rate taxes ATSV 3 4 5 Depreciation: New Old $0 $0 $0 $0 $0