Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

PC Shopping Network may upgrade its modem pool. It last upgraded 2 years ago, when it spent $95 million on equipment with an assumed life

image text in transcribed
PC Shopping Network may upgrade its modem pool. It last upgraded 2 years ago, when it spent $95 million on equipment with an assumed life of 5 years and an assumed salvage value of $20 million for tax purposes. The firm uses straight-line depreciation. The old equlpment can be sold today for $80 million. A new modem pool can be installed todoy for $150million. This will have a 3year life and will be depreciated to zero using straight-4ine depreciation. The new equipment will enable the firm to ineroase sales by $344 milion per year and decrease operating costs by $17 million per year. At the end of 3 years, the new equipment will be worthiess. Assume the firm's tox rate is 30% and the discount rate for projects of this sort is 15%. Required: a. What is the net cash flow at time o if the cld equipment is replaced? Note: Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. b. What are the incremental cash flows in years; (i) 1 ; (ii) 2 ; (iin) 3 ? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. c. What is the NPV of the replacement project? Note: Do not round intermediate calculations. Enter the NPV in millions rounded to 2 decimal places. d. What is the IRR of the replacement project? Note: Do not round intermediate calculations. Enter the IRR as a percent rounded to 2 decimal places

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Handbook Of Alternative Assets

Authors: Mark J. P. Anson

2nd Edition

047198020X, 978-0471980209

More Books

Students also viewed these Finance questions