Question
Hello, I need step by step intructions on how to answer this homework question? PC Shopping Network may upgrade its modem pool. It last upgraded
Hello,
I need step by step intructions on how to answer this homework question?
PC Shopping Network may upgrade its modem pool. It last upgraded 2 years ago, when it spent $105 million on equipment with an assumed life of 5 years and an assumed salvage value of $15 million for tax purposes. The firm uses straight-line depreciation. The old equipment can be sold today for $80 million. A new modem pool can be installed today for $180 million. This will have a 3-year life and will be depreciated to zero using straight-line depreciation. The new equipment will enable the firm to increase sales by $26 million per year and decrease operating costs by $13 million per year. At the end of 3 years, the new equipment will be worthless. Assume the firm's tax rate is 35% and the discount rate for projects of this sort is 13%.
a.What is the net cash flow at time 0 if the old equipment is replaced?(Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
b.What are the incremental cash flows in years 1, 2, and 3?(Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
c.What are the NPV and IRR of the replacement project?(Do not round intermediate calculations. Enter the NPV in millions rounded to 2 decimal places. Enter the IRR as a percent rounded to 2 decimal places.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started