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PC Shopping Network may upgrade its modem pool. It last upgraded 2 years ago, when it spent $ 1 7 0 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 firm's tax rate is and the discount rate for
projects of this sort is
Required:
a What is the net cash flow at time 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 decimal places.
b What are the incremental cash flows in years: i; ii; iii
Note: Do not round intermediate calculations. Enter your answer
in millions rounded to decimal places.
c What is the NPV of the replacement project?
Note: Do not round intermediate calculations. Enter the NPV in
millions rounded to 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 decimal places.
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