Max Chips is a manufacturer of prototype chips based in Dublin, Ireland. Next year, in 2021, Max Chips expects to deliver 555 prototype chips at an average price of $110,000. Max Chips' marketing vice president forecasts growth of 85 prototype chips per year through 2027. That is, demand will be 555 in 2021, 640 in 2022, 725 in 2023, and so on.
The plant cannot produce more than 525 prototype chips annually. To meet future demand, Max Chips must either modemize the plant or replace it. The old equipment is fully depreciated and can be sold for $4,100,000 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 Max 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. Max Chips' required rate of return is 12%. There is no difference between the "modemize" and "replace" alternatives in terms of required working capital. Max Chips has a special walver on income taxes until 2027. Requirement 1. Calculate the cash inflows and outflows of the "modernize" and "replace" allematives over the 2021 - 2027 period. First, determine the cash inflows and outflows of the "modernize" altemative over the 2021 to 2027 period. (Use a minus sign or parentheses for a cash outflows. If an input fiold is not used in the table, leave that input field empty, do not enter a zero.) Requirements 1. Calculate the cash inflows and outfiows of the "modernize" and "replace" alternatives over the 2021 - 2027 period. 2. Calculate payback period for the "modernize" and "replace" altematives. 3. Calculate net present value of the "modemize" and "replace" altematives. 4. What factors should Max Chips consider in choosing between the altematives? The plant cannot produce more than 525 prototype chips annually. To meet future demand, Max Chips must either modemize the plant or replace it. The old equipment is fully depreciated and can be sold for $4,100,000 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 Max 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. Max Chips' required rate of return is 12%. There is no difference between the "modemize" and "replace" alternatives in terms of required working capital. Max Chips has a special walver on income taxes until 2027. Requirement 1. Calculate the cash inflows and outflows of the "modernize" and "replace" allematives over the 2021 - 2027 period. First, determine the cash inflows and outflows of the "modernize" altemative over the 2021 to 2027 period. (Use a minus sign or parentheses for a cash outflows. If an input fiold is not used in the table, leave that input field empty, do not enter a zero.) Requirements 1. Calculate the cash inflows and outfiows of the "modernize" and "replace" alternatives over the 2021 - 2027 period. 2. Calculate payback period for the "modernize" and "replace" altematives. 3. Calculate net present value of the "modemize" and "replace" altematives. 4. What factors should Max Chips consider in choosing between the altematives
