P11-29 (similar to) Question Help Integrative Investment decision Holliday Manufacturing is considering the replacement machine can be sold currently for S179,000 before taxes. It is 2 years old, cost $799,000 new, and has a S383,520 book value and a remaining useful life of 5 years. an existing machine. The new machine costs $1.18 million and requires installation costs of $157,000. The existing was being depreciated under MACRS using a 5-year recovery period and therefore has the final 4 years of depreciation remaining. If it is held for 5 more years, the machine's market value at the end of year 5 will be S0. Over its 5-year life, the new machine should reduce operating costs by $346,000 per year. The new machine will be depreciated under MACRS using a 5-year recovery period. The new machine can be sold for $210,000 net of removal and cleanup costs at the end of 5 years. An increased investment in net working capital of $28,000 will be needed to support operations if the new machine is acquired. Assume that the firm has adequate operating income against which 40% tax rate. to deduct any loss experienced on the sale of the existing machine. The firm has a 8.7% cost of capital and is subject to b. Determine the net present value (NPV) of the pronoeal dreplacement c. Determine the intemal rate of return (IRR) of the proposal. d. Make a recommendation to accept or reject the replacement proposal, and justify your answer. e. What is the highest cost of capital that the firm could have and still accept the proposal? a. Develop the relevant cash flows needed to analyze the proposed replacement. Calculate the initial investment: (Round to the nearest dollar.) Cost of the new machine Installation cost Installed cost of new asset existing machine Proceeds from sale ? Enter any number in the edit fields and then click Check Answer. should reduce operating costs by $346,000 per year. The new machine will be depreciate Rounded Depreciation Percentages by Recovery Year Using MACRS for Property Classes d a dod ovating echine The firm has a 8 7% Percentage by recovery year* a. Develop the net cash flows needed to analyze the proposed replacement. b. Determine the net present value (NPV) of the proposal. c. Determine the internal rate of retun (IRR) of the proposal. Recovery year years 7 years years years 33% 20% 14% 10% 1 45% 2 32% 25% 18% the replacement proposal, and justify your accept the propasal aeptrleje wl e 15% 19% 18% 14% t c 7% 12% 12% 12% 4 ww 12% 5 9% 9% Installed cost of new asset 5% 9% 8% Proceeds from sale of existing machine 7 9% 7% 4% 6% Tax on sale existing machine Total after-tax proceeds from sale 10 6% 4% 11 Increase in net working capital S 100% Totals 100% 100% 100% Initial investment These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism o calculate the actual depreciation for tax purposes, be sure to apply the actual dimotlu onnlu double dodlinina bolonos 20091 donmoiotio usina the balf voo. runded narnantoano Enter any number in the edit fields and then click Check Answer. Print Done 17 parts romainino