Question
I want answer of A,B,C,D with few steps PC Shopping Network may upgrade its modem pool. It last upgraded 3 years ago, when it spent
I want answer of A,B,C,D with few steps
PC Shopping Network may upgrade its modem pool. It last upgraded 3 years ago, when it spent $104 million on equipment with an assumed life of 6 years and an assumed salvage value of $29 million for tax purposes. The firm uses straight-line depreciation. The old equipment can be sold today for $87 million. A new modem pool can be installed today for $141 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 $32 million per year and decrease operating costs by $9 million per year. At the end of 3 years, the new equipment will be worthless. Assume the firm's tax rate is 35% and the discount rate for projects of this sort is 16%.
a.What is the net cash flow at time 0 if the old equipment is replaced?The net cash flow at time 0$million
b.What is the incremental cash flow in year 1?The incremental cash flow in year 1$million
What is the incremental cash flow in year 2?The incremental cash flow in year 2$million
What is the incremental cash flow in year 3?The incremental cash flow in year 3$million
c.What is the NPV of the replacement project?NPV$million
What is the IRR of the replacement project?IRR%
d.Now ignore straight-line depreciation and assume that both new and old equipment are in an asset class with a CCA rate of 30%. PC Shopping Network has other assets in this asset class. What is the NPV of the replacement project? For this part, assume that the new equipment will have a salvage value of $34 million at the end of 3 years.NPV$million
Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $19,000 and will be depreciated in an asset class that carries a CCA rate of 30%. It will be sold for scrap metal after 3 years for $4,100. The grill will have no effect on revenues but will save Johnny's $9,400 in energy expenses. The firm has other assets in this asset class. The tax rate is 35%.
a.What are the operating cash flows in years 1 to 3?The operating cash flow in year 1$The operating cash flow in year 2$The operating cash flow in year 3$
b.What are total cash flows in years 1 to 3?The total cash flow in year 1$The total cash flow in year 2$The total cash flow in year 3$
c.If the discount rate is 15%, should the grill be purchased?If the discount rate is 15%, the grill(Click to select)
should be purchased
should not be purchased
.
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