Philadelphia Fastener Corporation manufactures nails, screws, bolts, and other fasteners. Management is considering a proposal to acquire new material-handling equipment. The new equipment has the same capacity as the current equipment but will provide operating efficiencies in labor and power usage. The savings in operating costs are estimated at $150,000 annually. The new equipment will cost $300,000 and will be purchased at the beginning of the year when the project is started. The equipment dealer is certain that the equipment will be operational during the second quarter of the year it is installed. Therefore, 60 percent of the estimated annual savings can be obtained in the first year. The company will incur a one-time expense of $30,000 to transfer production activities from the old equipment to the new equipment. No loss of sales will occur, however, because the processing facility is large enough to install the new equipment without interfering with the operations of the current equipment. The equipment is in the MACRS 7-year property class. The firm would depreciate the machinery in accordance with the MACRS depreciation schedule. The current equipment has been fully depreciated. Management has reviewed its condition and has concluded that it can be used an additional eight years. The company would receive $10,000, net of removal costs, if it elected to buy the new equipment and dispose of its current equipment at this time. The new equipment will have no salvage value at the end of its life. The company is subject to a 40 percent income-tax rate and requires an after-tax return of at least 12 percent on any investment. Use Appendix A and Exhibit 16-9 for your reference. (Use appropriate factor(s) from the tables provided.) Required: 1.Calculate the annual incremental after-tax cash flows for Philadelphia Fastener Corporation's proposal to acquire the new equipment. 2-a. Calculate the net present value of the proposal to acquire the new equipment using the cash flows calculated in requirement (1), Assume all cash flows take place at the end of the year. 2-b. Should management purchase the new equipment? Future Value and Present Value Tables Table ! Future Value of $1.00/1 + 1" Period 10% 12% 14% 20% 6% 1.000 1.100 1.200 1.210 1.191 1.728 2074 1.338 4% 1,040 1,082 1.125 1.170 1217 1.285 1316 1.360 1,423 1.480 1.540 1.601 1.8652 1.732 1.801 8% 1.000 1.166 1.260 1.361 1409 1.587 1714 1.851 1.999 2.150 2302 2518 2720 2937 1.331 1.454 1.611 1.772 1949 2.144 2.359 1.504 1.564 1.690 1.140 1.300 1.482 1.699 1.905 2.196 2.502 2.853 3.262 8.707 1.120 1.254 1.405 1.574 1.762 1.974 2211 2478 2773 3.100 3.479 3.898 4.364 4.887 5.474 9.646 29.960 3.051 2.996 3.583 4.300 5.100 1.791 2594 2363 3.139 3.452 1.898 2.012 .133 2.261 2.397 3.20 5.744 10.298 8.916 10.000 12.839 15.07 3.172 4818 5.402 6.261 7.138 13743 0.960 1.890 2.191 3.243 4.801 3.798 4.177 6.728 7.450 45.200 4661 10.063 21.725 1 5 237 390 1.489 300 Period 6% 8% 10% 12% 20% Table II Future Value of a Series of $1.00 Cash Flows Ordinary Annuity) (1 + 1 - 1 4% 1.000 2,040 3.122 1.000 2220 1.000 2060 3.184 4.375 1.000 2080 3.246 4.506 5.867 1.000 2100 3.310 4.561 6,105 1.000 2120 3.374 4.779 3.640 4247 5.418 6.753 14% 1.000 2.140 3440 4.921 6810 24538 10.730 13.233 16.085 19.337 142 8.975 8.304 6.833 7.898 9214 10.583 12.006 7.716 9.487 11.438 13.50 15.933 8.115 10,089 12.300 14.778 17.549 9.830 12.916 18.429 20.799 25.969 32.150 39 580 497 7.338 8.903 10.637 12.488 14.487 16.648 18.977 21.495 24.215 27.152 45.762 113.283 2 59.057 13181 14.972 16870 18.882 21.015 23.276 3 6.778 7 9.068 154.762 13.486 15,026 15.627 18.292 20.024 20.778 56.085 9 6,026 59.196 18.531 21.385 24.523 27 976 31.773 57.276 164.496 412.597 20.865 24133 28.029 32 393 37.280 75,052 241.330 767,090 23.045 27271 32.099 37.581 41 342 91.025 356,700 1,342.000 20 30 40 72035 186.600 1,181.900 7,343.900 Table III Present Value of $1.00 (1 + no Period 2 3 4 5 B 7 143 9 10 11 12 13 14 15 20 30 40 4% 6% 8% 10% 962 943 926 909 925 890 857 826 889 840 .794 751 855 792 736 683 822 747 681 621 790 706 630 564 700 R$ 583 513 731 27 540 457 703562500424 676 558 483 650 527 429 3 50 625 497 397 319 601 469358290 577 442 340 263 566 417 315 239 4 56 312 215 149 308 174 099 067 2 08 097 046 022 12% 14% 16% 18% 893 877 862 847 797 769743718 7 12 675 541 609 636 582 552 516 5 67 519 476 437 507 458 410 370 452 400 354 314 404 351305 266 361 36263 225 322 270 227 101 287 237 195 162 2 57 208 168 137 229 182 145 116 206 .160 .125 099 183 140 106 084 .104 073 061 .037 033 020 012 .007 011 .006 .003 .001 20% 833 694 579 482 412 335 279 233 194 102 135 112 093 078 085 026 004 001 22% 24% 26% 28% 30% 32% 820 806 7 94 781 789 758 672 650 .630 610 592574 561 524 500 .477 455 435 451 423 397 373 350 329 370 341 315 291 249 250 313 275 260 227 207 189 249 222 198 178 159 204 179157139123106 167 144 125 108094 137 116 099 085 073 062 .112 .094 .079 .066 056 047 .082 .078 062 .062 043 036 075 051 050 040033 027 082 049 .009 .002 .025 21 051 04 03 025 020 016 019 014 010 .007 .005 .004 003 002 .001 .001 - - - - - - - Table IV Present Value of Series of $1.00 Cash Flows +/- intl Period 1 2 3 4 5 8 9 7 4% 8% 9% 10% 12% 14% 18% 18% 0.962 0.943 0.928 0.909 0.893 0.877 0.862 0.847 1.888 1.833 1.783 1.738 1.690 1.647 1.666 1.566 2775 2.673 2 577 2.487 2402 2.322 2.246 2.174 3,630 3.465 3.312 3.170 3.037 2.914 2.798 2.690 4.452 4.212 3.993 3.791 3.606 3.433 3.274 3.127 5.242 4 .917 4.623 4.355 4111 3.8893665 3.498 6.0025.5825.206 4.8684564 4.288 4.099 3.812 6.733 6.210 5.747 5.335 49684.639 4.344 4.078 .435 6.802 6247 5.759 5328 446 4.607 4.303 .111 7.380 6.710 6.145 5.650 5.216 4.833 4.494 8.760 7.887 7.139 6.495 5.938 5.453 5.029 4.656 .3858.384 7.5386.814 6.194 5.680 5.1974.79 .906 8.853 7.904 7.103 6.424 5.842 5.342 4.910 10.5639.295 824 7.307 6.628 6002 5.468 5008 11.1189.712 8.559 7.808 6.811 6142 5.5755.092 13.590 11.470 9.818 8.514 7.489 6.623 5.529 5.353 17.29213.785 11258 9.4278 056 7.003 6.177 5.517 19.79315.048 11.925 9.7798244 7.106 6.2845.548 20% 22% 24% 25% 0.833 0.820 0.808 0.800 1.528 1.492 1.457 1.440 2.106 2.042 1.981 1.962 2.589 2494 2.404 2362 2.991 2864 2.745 2 9 3.326 3.167 3.020 2061 3.605 3.416 32423.161 3.837 3.619 3.421 3.329 4.031 3.786 3568 3.463 4.192 3.923 3.2 3.571 4.327 4.035 3.776 3.656 4.439 4.127 3.851 3.725 4.533 4.200 3,912 3.780 4611 42253.982 3.824 4.675 4.3154.001 3859 4.870 4480 4.110 3.964 4.9794.5344.160 3 996 4.997 4,544 4.168 3.999 20% 20% 0.794 0.781 1.424 1.390 1.923 1.888 2320 2.241 26352.532 2885 2.759 3.063 2.937 3.241 3.078 3.386 3.184 3.466 3280 3.544 3.335 3.606 3.387 3.656 3.427 3.026 3459 3726 3.483 3.808 3.546 3.842 3.589 3.848 3.571 30% 0.709 1.361 1.816 2.168 2438 2.643 2.802 2.925 3.019 3.092 3.147 3.190 3.223 3.249 3.268 3.316 3.332 3.333 9 8 10 11 12 13 14 15 20 30 4) Complete this question by entering your answers in the tabs below. Req 1 Req 1 Req 2A Req 2A Req 2B Req 2B Calculate the annual incremental after-tax cash flows for Philadelphia Fastener Corporation's proposal to acquire the new equipment, Year 1 Year 2 Annual Operation Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Cash operating savings Less tax effect Cash savings after tax $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Depreciation tax shield After-tax operating cash flows $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ Req1 Req 2A > Complete this question by entering your answers in the tabs below. Req 1 Req 2A Req 2B Calculate the net present value of the proposal to acquire the new equipment using the cash flows calculated in requirement (1), Assume all cash flows take place at the end of the year. (Round your final answer to a whole dollar amount.) Net present value