Integrative Investment decision Holiday Manufacturing is considering the replacement of an existing machine. The new machine costa $1.22 milion and requires installation costs of $144,000. The existing machine can be sold currently for $178 000 before taxes Itis 2 years old cost $806.000 new, and has a $386.880 book value and a remaining useful life of 5 years was being depreciated under MACRS using a 5 year recovery penod and therefore has the fnal 4 years of depreciation remaining. It is held for 5 more years, the machine's market value at the end of year 5 will be 50 Overits Byear life the new machine should reduce operating costs by 5357.000 per year. The nes machine wil be depreciated under MACRS using a 5-year recovery period The new machine can be sold for $208.000 net of removal and cleanup costs at the end of five years An increased imeestment in networking capital of 521.000 will be needed to support operations if the new machine is acquired. Assume that the firm has adequate operating income against which to deduct any loss experienced on the sale of the existing machine The firm has a 875 cost of capital and subject to a 40% tax rate Develop the net cash low needed to analyze the proposed replacement b. Determine the net present a NPV) of the proposal c. Determine the internal este of return (IRRof the proposal d. Make a recommendation to accept or reject the replacement proposal, and justify your answer .. What is the highest cost of capital that the firm could have and still accept the proposal? Develop the net cash fows needed to analyze the proposed replacement Calculate the initial cash flow (Round to the nearest doilla) Cost of the new machine 1220000 Installation to 144000 Installed cost of new 1934000 Proceeds from sale of stig machine -170000 Tax on sale of existing machine Total after tax proceeds from sal -261562 Increase in networking capital 21000 Incallow 5 112345 5 Calculate the operating cash flows from the existing machine: (Round to the nearest dollar) Cash Inflows Existing Machine Year 1 Depreciation $ 214200 Net profits before taxes 109120 Taxes $ 61256 Net profits after taxes $ 262064 Operating cash inflows 262064 $ $ A (Round to the nearest dollar.) Cash Inflows Existing Machine Year 2 Depreciation $ 214200 Net profits before taxes 174592 Taxes $ 38688 Net profits after taxes $ 350104 Onerating cash infinue $ 350104 A Lasn inToWS Existing machine Year 3 $ 214200 CA 103664 Depreciation Net profits before taxes Taxes Net profits after taxes 38688 S $ 2791761 $ 279176 Operating cash inflows (Round to the nearest dollar.) Cash Inflows Existing Machine Year 4 $ 214200 Depreciation Net profits before taxes EA 65472 Taxes $ 16120 Net profits after taxes $ 263552 Operating cash inflows $ 263552 (Round to the nearest dollar.) Cash Inflows Existing Machine Year 5 A 214200 Depreciation Net profits before taxes S 65472 Taxes A 0 Net profits after taxes $ 279672 A 452752 Operating cash inflows (Round to the nearest dollar.) Cash Inflows Existing Machine Year 6 CA Depreciation Net profits before taxes Taxes S $ Net profits after taxes GA Operating cash inflows S Calculate the operating cash flows from the new machine: (Rou Calculate the operating cash flows from the new machine: Cash Inflows New Machine Year 1 $ $ $ CA Reduction in operating costs Depreciation Net profits before taxes Taxes Net profits after taxes Operating cash inflows $ $ $ Incremental Cash Flow $ (Round to the nearest dollar.) 2 Cash Inflows New Machine Year Reduction in operating costs $ Depreciation $ Cash Inflows New Machine Year 3 $ GA $ $ Reduction in operating costs Depreciation Net profits before taxes Taxes Net profits after taxes Operating cash inflows $ S $ S Incremental Cash Flow (Round to the nearest dollar.) Cash Inflows New Machine Year 4 Reduction in operating costs Depreciation Net profits before taxes $ $ $ Taxes $ Calculate the terminal cash flow. (Round to the nearest dollar.) $ $ Proceeds from sale of new asset $ Tax on sale of new asset $ Total proceeds-sale of new asset Change in net working capital Terminal cash flow b. Determine the net present value (NPV) of the proposal. The net present value is $ (Round to the nearest dollar.) c. Determine the internal rate of return (IRR) of the proposal. The internal rate of retum is %. (Round to one decimal place.) d. Make a recommendation to accept or reject the replacement proposal, and justify your answer. (Select Since the NPV O and the IRR cost of capital, the new machine be purchased e. The highest cost of capital that the firm could have and still accept the proposal is %. (Round to one