Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

image text in transcribed
PC Shopping Network may upgrade its modern pool. It last upgraded 2 years ago, when it spent $95 million on equipment with on assumed life of 5 years and an assumed salvage value of $20 million for tax purposes. The firm uses straight-line depreciation. The old equipment can be sold today for $80 million. A new modern pool can be installed today for $150 million. This will have a 3-year life and will be depreciated to zero using straight-line depreciation. The new equipment will enable the firm to increase soles by $34 million per year and decrease operating costs by $17 million per year. At the end of 3 years, the new equipment will be worthless. Assume the firm's tax rate is 35% and the discount rate for projects of this sort is 15%. What is the net cash flow at time 0 if the old equipment is replaced? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) What are the incremental cash flows in years 1, 2, and 3? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) What are the NPV and IRR of the replacement project? Do not round intermediate calculations. Enter the NPV in millions rounded to 2 decimal places. 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

Contemporary Quantitative Finance

Authors: Carl Chiarella, Alexander Novikov

2010th Edition

3642034780, 978-3642034787

More Books

Students also viewed these Finance questions