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PC Shopping network may upgrade its modern pool it last upgraded two years ago when it spent $ 8 5 million on equipment with an
PC Shopping network may upgrade its modern pool it last upgraded two years ago when it spent $ million on equipment with an assumed life of five years and assumed salvage value of million for tax purposes the firm uses straight line appreciation the old equipment can be sold today for million a new modern pool can be installed today for million. This will have a three year life and will be depreciated to zero using straight line depreciation. The new equipment will enable the firm to increase sales by million per year and decrease operating cost by $ million per year at the end of the three years. The new equipment will be worthless. Assume the firms tax rate is and the discount rate for the project of this sort is what is the net cash flow at times zero if the equipment is replaced what is the incremental cash flow in years and three what is the NPV of the replacement project? What is the IRR of the replacement project?
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