Modern Chips is a manufacturer of prototype chips based in Buffalo, New York. (Click the icon to view the prototype chips information.) E: (Click the icon to view information on the options.) Present Value of $1 table Present Value of Annuity of $1 table Future Value of $1 table Future Value of Annuity of $1 table Read the requirements Requirements 1 and 2. Calculate the after-tax cash inflows and outflows of the "modernize" and "replace" alternatives over the 2021 - 2027 period and calculate the net present value for each alternative. Let's begin with the "modernize" alternative. Start by computing the present value of the after-tax cash flows from operations, then calculate the present value of the after-tax cash savings from depreciation and the terminal disposal value, and finally, determine the total net present value (NPV) of the investment for the "modernize" alternative. (Round intermediary calculations and your final answers to the nearest whole dollar. Use a minus sign or parentheses for a negative present value of net cash flows.) Net Cash Present Value Data Table PV factor Inflow of Cash Flows Net initial investment $ (36,500,000) The following data on the two options are available: After-tax cash flows from operations: Modernize Replace Dec 31, 2021 0.926 $ 5,368,000 4,970,768 Initial investment in 2021 S 36,500,000 $ 62,500,000 Dec 31, 2022 0.857 5,940,000 5,090,580 Terminal disposal value in 2027 $ 6,200,000 $ 17,000,000 Dec 31, 2023 0.794 6,512,000 5,170,528 Useful life 7 years 7 years Dec 31, 2024 0.735 7,084,000 5,206,740 74,000 $ 65,000 Total annual cash operating cost per prototype chip S Dec 31, 2025 0.681 7,656,000 = 5,213,736 Dec 31, 2026 0.630 8,228,000 5,183,640 Modern 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 Dec 31, 2027 0.583 8,800,000 5,130,400 of 2021, and all transactions thereafter occur on the last day of the year. Modern Chips' required rate of return is 8%. There is no difference between the "modernize" and "replace" alternatives in terms of Present value of after-tax cash flow from required working capital. Modern Chips pays a 45% tax rate on all income. Proceeds from sales of sale of equipment equipment above book value are taxed at the same 45% rate. X x X X Enter any number in the edit fields and then click Check Answer. esent Value More Info Cash Flows Requirements (36,500,000) Next year, in 2021, Modern Chips expects to deliver 610 prototype chips at an average price of $90,000. Modern Chips' marketing vice president forecasts growth of 65 prototype chips per year through 2027. That is, demand will be 610 in 2021, 675 in 2022, 740 in 2023, and so on. 4,970,768 5,090,580 The plant cannot produce more than 595 prototype chips annually. To meet future demand, Modern Chips must either modernize the plant or replace it. The old equipment is fully depreciated and can be sold for $4,500,000 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. 5,170,528 5,206,740 5,213,736 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 Modern Chips is planning to build several more plants. It wants to have the most advantageous tax position possible. Modern 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 Modern Chips. 5,183,640 5130 400 Modern Chips is a manufacturer of prototype chips based in Buffalo, New York. (Click the icon to view the prototype chips information.) E: (Click the icon to view information on the options.) Present Value of $1 table Present Value of Annuity of $1 table Future Value of $1 table Future Value of Annuity of $1 table Read the requirements Requirements 1 and 2. Calculate the after-tax cash inflows and outflows of the "modernize" and "replace" alternatives over the 2021 - 2027 period and calculate the net present value for each alternative. Let's begin with the "modernize" alternative. Start by computing the present value of the after-tax cash flows from operations, then calculate the present value of the after-tax cash savings from depreciation and the terminal disposal value, and finally, determine the total net present value (NPV) of the investment for the "modernize" alternative. (Round intermediary calculations and your final answers to the nearest whole dollar. Use a minus sign or parentheses for a negative present value of net cash flows.) Net Cash Present Value Data Table PV factor Inflow of Cash Flows Net initial investment $ (36,500,000) The following data on the two options are available: After-tax cash flows from operations: Modernize Replace Dec 31, 2021 0.926 $ 5,368,000 4,970,768 Initial investment in 2021 S 36,500,000 $ 62,500,000 Dec 31, 2022 0.857 5,940,000 5,090,580 Terminal disposal value in 2027 $ 6,200,000 $ 17,000,000 Dec 31, 2023 0.794 6,512,000 5,170,528 Useful life 7 years 7 years Dec 31, 2024 0.735 7,084,000 5,206,740 74,000 $ 65,000 Total annual cash operating cost per prototype chip S Dec 31, 2025 0.681 7,656,000 = 5,213,736 Dec 31, 2026 0.630 8,228,000 5,183,640 Modern 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 Dec 31, 2027 0.583 8,800,000 5,130,400 of 2021, and all transactions thereafter occur on the last day of the year. Modern Chips' required rate of return is 8%. There is no difference between the "modernize" and "replace" alternatives in terms of Present value of after-tax cash flow from required working capital. Modern Chips pays a 45% tax rate on all income. Proceeds from sales of sale of equipment equipment above book value are taxed at the same 45% rate. X x X X Enter any number in the edit fields and then click Check Answer. esent Value More Info Cash Flows Requirements (36,500,000) Next year, in 2021, Modern Chips expects to deliver 610 prototype chips at an average price of $90,000. Modern Chips' marketing vice president forecasts growth of 65 prototype chips per year through 2027. That is, demand will be 610 in 2021, 675 in 2022, 740 in 2023, and so on. 4,970,768 5,090,580 The plant cannot produce more than 595 prototype chips annually. To meet future demand, Modern Chips must either modernize the plant or replace it. The old equipment is fully depreciated and can be sold for $4,500,000 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. 5,170,528 5,206,740 5,213,736 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 Modern Chips is planning to build several more plants. It wants to have the most advantageous tax position possible. Modern 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 Modern Chips. 5,183,640 5130 400