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 $80 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 $80 million on equipment with an assumed life of 5 years and an assumed salvage value of $25 milion for tax purposes. The firm uses straight-ine depreciation. The oid equipment can be sold today for $70 million. A new modem pool can be installed today for $150 million. This will have a 3 -year life and will be depreciated to zero using straight tine depreciation The new equipment will enable the firm to increase sales by $25 million per year and decrease operating costs by $12 million per year. At the end of 3 years, the new equipment will be worthless. Assumie the firm's tax rate is 30% and the discount rate for projects of this sort is 15\%. Required: a. What is the net cash flow at time 0 if the old 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 ploces. b. What are the incremental cash flows in years. (1) 1; (ii) 2; (iii) 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 ploces. d. What is the IRR of the replacement project? Note: Do not round intermediate calculotions. Enter the IRR as a percent rounded to 2 decimal ploces

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

Public School Finance Decoded

Authors: Jay C. Toland

1st Edition

1475827679, 978-1475827675

More Books

Students also viewed these Finance questions