More info Data table The plant cannot produce more than 495 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 $4,700,000 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 updated plant. The old equipment is retained as part of the modernize alternative. The following data on the two option are available: Initial investment in 2018 Terminal disposal value in 2024 Useful life Modernize Replace $ 36,100,000 $ 64,900,000 $ 6,600,000 $ 17,200,000 7 years 7 years 50,500 $ 41,000 Total annual cash operating cost per prototype chip $ 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 of 2018, and all transactions thereafter occur on the last day of the year. Modern Chips' required rate of return is 12%. There is no difference between the modernize and replace alternatives in terms of required working capital. Modern Chips has a special waiver on income taxes until 2024. Requirement 1. Calculate the cash inflows and outflows of the modernize and replace alternatives over the 2018 - 2024 period. First, determine the cash inflows and outflows of the modernize alternative over the 2018 to 2024 period. (Use a minus sign or parentheses for a cash outflows. If a box is not used in the table, leave that box empty, do not enter a zero.) Year Jan 1, 2018 Units sold Dec 31, 2018 525 Dec 31, 2019 610 Dec 31, 2020 695 Dec 31, 2021 780 Dec 31, 2022 865 Dec 31, 2023 950 1035 Net cash contributions Initial investments Proceeds from sale of equipment (36,100,000) Dec 31, 2024 Next, determine the cash inflows and outflows of the replace alternative over the 2018 to 2024 period. (Use a minus sign or parentheses for a cash outflows. If a box is not used in the table, leave that box empty, do not enter a zero.) Year Units sold Jan 1, 2018 Dec 31, 2018 Dec 31, 2019 Proceeds from Net cash contributions Initial investments sale of equipment Dec 31, 2020 Dec 31, 2021 Dec 31, 2022 Dec 31, 2023 Dec 31, 2024