Exercise 5 The firm Perceval acquired 5 years ago an equipment that was worth 200 000 $, depreciated on a straight-line basis over 5 years. This equipment was due to produce 50 000 units a year during 12 years. Today, its market value is estimated at 6 000 $. A new equipment, worth 300 000 $, should increase the annual production by 10 000 units at a lower cost. Depreciation for that equipment is also on straight-line basis over 5 years. Difference Here is a comparative table of costs per units (in $): Elements Old equipment New equipment Raw materials 5 4,9 Labour costs 2 1,8 Indirect expenses 3 2,7 0,1 0,2 0,3 The selling price per unit is 12 S. The market value of the new equipment after 7 years of use will be zero and it will have to be replaced then. The income tax rate and tax on capital gain) is 35%. The working capital requirement of the company amounts to 1 month of sales. Calculate the net cash flows and the IRR of this replacement project. Exercise 5 The firm Perceval acquired 5 years ago an equipment that was worth 200 000 $, depreciated on a straight-line basis over 5 years. This equipment was due to produce 50 000 units a year during 12 years. Today, its market value is estimated at 6 000 $. A new equipment, worth 300 000 $, should increase the annual production by 10 000 units at a lower cost. Depreciation for that equipment is also on straight-line basis over 5 years. Difference Here is a comparative table of costs per units (in $): Elements Old equipment New equipment Raw materials 5 4,9 Labour costs 2 1,8 Indirect expenses 3 2,7 0,1 0,2 0,3 The selling price per unit is 12 S. The market value of the new equipment after 7 years of use will be zero and it will have to be replaced then. The income tax rate and tax on capital gain) is 35%. The working capital requirement of the company amounts to 1 month of sales. Calculate the net cash flows and the IRR of this replacement project