GODIVA COMPANY IS CONSIDERING REPLACING A 5 YEAR OLD MACHINE THAT ORIGINALLY COST = $50.000 THE OLD MACHINE HAS A 10 YEAR LIFE; WAS DEPRECIATED USING THE STRAIGHT LINE METHOD. SALVAGE VALUE AT END OF 10 YEARS = 0. IT'S CURRENT MARKET (CAN BE SOLD FOR) VALUE IS $40,000. THE PROPOSED REPLACEMENT MACHINE WOULD COST = $ 190,000 AND HAS AN EXPECTED LIFE = 5 YEARS = THE NEW MACHINE WOULD BE DEPRECIATED USING MACRS 5-YEAR SCHEDULE (SEE BELOW) ITS EXPECTED SALVAGE VALUE = $20,000 THE NEW MACHINE IS EXPECTED TO SAVE $10,000 / YEAR BY OPERATING WITH LESS ENERGY COST. ALSO, BY REDUCING ONE SALARIED POSITION, THE NEW MACHIN WILL SAVE ANOTHER $45,000 PER YEAR. GODIVA MARGINAL TAX RATE = 35% AND ITS WACC = 9%. QUESTIONS: A) SET UP A WORKSHEET CONTAINING ALL RELEVANT INFORMATION SHOWING BEFORE TAX AND AFTER TAX CASH FLOWS OVER THE 5 YEAR PROJECTED PERIOD. WORKSHEET SHOULD SHOW ANNUAL BEFORE AND AFTER TAX CASH FLOWS FOR EACH YEAR, INCLUDING INITIAL OUTLAY, AND FINAL YEAR EQUIPMENT DISPOSAL. HINT: CONSIDER: BUY THE NEW MACHINE AND SELL THE OLD MACHINE ) B) COMPUTE THE NPV, IRR OF THIS PROJECT: IS THE PROJECT ACCEPTABLE FOR GODIVA? C) AT WHAT DISCOUNT RATE WOULD GODIVA BE INDIFFERENT TO KEEPING THE OLD MACHINE OR SELLING AND BUYING THE NEW MACHINE ? NOTE: THAT RATE SUCH THAT NPV = 0 = WHAT IS THAT IRR (BREAKEVEN RATE) : USE A 1-WAY DATATABLE & GRAPH TO SHOW NPV AS A FUNCTION OF SALARY SAVINGS (I.E., PER $1,000 INCREASE IN SAVINGS WHAT IS THE IMPACT ON NPV ?) DAT WHAT MINIMUM SALARY SAVINGS / YEAR WOULD GODIVA REQUIRE SUCH THAT THE PROJECT IS ACCEPTABLE? + GIVEN: MACRS 5 yrs 1 2 4 5 6 3 19.20% 20.00% 32.00% 11.52% 11.52% 5.76% INPUT SUMMARY: Costs (original) Current Salvage Value Current Market Value Actual Expected Salvage (in 5 years) Original Life Remaining Life Depreciation Method Depreciable Life Current Book Value of machine Energy Savings/year Salary Savings/year Tax Rate Old New Machine Machine 50,000 190,000