Expert Chips is a manufacturer of prototype chips based in Buffalo, New York. (i) (Click the icon to view the prototype chips information. the options.) (Click the icon to view information on Present Value of $1 table Present Value of Annuity of $1 table Future Value of Annuity of $1 table Read the requirements. Requirements 1 and 2. Calculate the after-tax cash inflows and outflows of the "modernize" and "replace" alternatives over the 20212027 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 finilly, determine the total net present value (NPV) of the investment for the "modernize" alternative. (Round intermediary calculations and your final answers to the nearest whole dollar Use a minus sign or parentheses for a negative present value of net cash flows.) Requirements 1. Calculate the after-tax cash inflows and outflows of the "modernize" and "replace" alternatives over the 20212027 period. 2. Calculate the net present value of the "modernize" and "replace" alternatives. 3. Suppose Expert Chips is planning to build several more plants. It wants to have the most advantageous tax position possible. Expert 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 Expert Chips. Next year, in 2021, Expert Chips expects to deliver 562 prototype chips at an average price of $55,000. Expert Chips' marketing vice president forecasts growth of 80 prototype chips per year through 2027 . That is, demand will be 562 in 2021 , 642 in 2022, 722 in 2023, and so on. The plant cannot produce more than 552 prototype chips annually. To meet future demand, Expert Chips must either modernize the plant or replace it. The old equipment is fully depreciated and can be sold for $4,400,000 if the plant is replaced. If the plant is modernized, the costs to modernize it are to be capitalized and depreciated over the useful life of the modernized plant. The old equipment is retained as part of the "modernize" alternative. Data table The following data on the two options are available: Expert 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 2021, and all transactions thereafter occur on the last day of the year. Expert Chips' required rate of return is 12%. There is no difference between the "modernize" and "replace" alternatives in terms of required working capital. Expert Chips pays a 40% tax rate on all income. Proceeds from sales of equipment above book value are taxed at the same 40% rate. Expert Chips is a manufacturer of prototype chips based in Buffalo, New York. (i) (Click the icon to view the prototype chips information. the options.) (Click the icon to view information on Present Value of $1 table Present Value of Annuity of $1 table Future Value of Annuity of $1 table Read the requirements. Requirements 1 and 2. Calculate the after-tax cash inflows and outflows of the "modernize" and "replace" alternatives over the 20212027 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 finilly, determine the total net present value (NPV) of the investment for the "modernize" alternative. (Round intermediary calculations and your final answers to the nearest whole dollar Use a minus sign or parentheses for a negative present value of net cash flows.) Requirements 1. Calculate the after-tax cash inflows and outflows of the "modernize" and "replace" alternatives over the 20212027 period. 2. Calculate the net present value of the "modernize" and "replace" alternatives. 3. Suppose Expert Chips is planning to build several more plants. It wants to have the most advantageous tax position possible. Expert 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 Expert Chips. Next year, in 2021, Expert Chips expects to deliver 562 prototype chips at an average price of $55,000. Expert Chips' marketing vice president forecasts growth of 80 prototype chips per year through 2027 . That is, demand will be 562 in 2021 , 642 in 2022, 722 in 2023, and so on. The plant cannot produce more than 552 prototype chips annually. To meet future demand, Expert Chips must either modernize the plant or replace it. The old equipment is fully depreciated and can be sold for $4,400,000 if the plant is replaced. If the plant is modernized, the costs to modernize it are to be capitalized and depreciated over the useful life of the modernized plant. The old equipment is retained as part of the "modernize" alternative. Data table The following data on the two options are available: Expert 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 2021, and all transactions thereafter occur on the last day of the year. Expert Chips' required rate of return is 12%. There is no difference between the "modernize" and "replace" alternatives in terms of required working capital. Expert Chips pays a 40% tax rate on all income. Proceeds from sales of equipment above book value are taxed at the same 40% rate
