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PC Shopping Network may upgrade its modem pool. It last upgraded 2 years ago, when it spent $ 1 4 5 million on equipment with
PC Shopping Network may upgrade its modem pool. It last upgraded years ago, when it spent $ million on equipment with an assumed life of years and an assumed salvage value of $ million for tax purposes. The firm uses straightline depreciation. The old equipment can be sold today for $ million. A new modem pool can be installed today for $ million. This will have a year life and will be depreciated to zero using straightline depreciation. The new equipment will enable the firm to increase sales by $ million per year and decrease operating costs by $ million per year. At the end of years, the new equipment will be worthless. Assume the firms tax rate is and the discount rate for projects of this sort is a What is the net cash flow at time if the old equipment is replaced? b What are the incremental cash flows in years: i; ii; iii c What is the NPV of the replacement project? d What is the IRR of the replacement project?
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