Max Chips is a manufacturer of prototype chips based in Buffalo, New York.

The following data on the two options are available: Modernize Replace Initial investment in 2021 $36,300,000 $63,800,000 Terminal disposal value in 2027 $7,200,000 $15,000,000 Useful life 7 years 7 years Total annual cash operating cost per prototype chip $84,000 $75,000

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 10%. There is no difference between the "modernize" and "replace" alternatives in terms of required working capital. Max Chips pays a 30% tax rate on all income. Proceeds from sales of equipment above book value are taxed at the same 30% rate.

1.	Calculate the after-tax cash inflows and outflows of the "modernize" and "replace" alternatives over the 2021 - 2027 period.
2.	Calculate the net present value of the "modernize" and "replace" alternatives.
3.	Suppose Max Chips is planning to build several more plants. It wants to have the most advantageous tax position possible. Max Chips has been approached by Spain, Malaysia, and Australia to construct plants in their countries. Briefly describe in qualitative terms the income tax features that would be advantageous to Max Chips.