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Please help with #1-6, I am totally lost. Thank you. You have been hired at Pepsi Corporation. Your first task is to determine if an
Please help with #1-6, I am totally lost. Thank you.
You have been hired at Pepsi Corporation. Your first task is to determine if an old bottling machine should be replaced with a new more efficient machine. The data is below. The old machine would be depreciated using the straight line method over its remaining 2 years of life, would have a $20,000 salvage value and has a current market value of $30,000. The new machine will cost $100,000 with added installation costs of $25,000, be depreciated using a 3 years MACRS schedule, 33%, 45%, 15% and 7% and have a salvage value of $30,000 after 4 years. An increase in net working capital of $5,000 would be required because of production efficiency the new bottling machine will be able to produce 11,000 per year compared to the production of 9,000 per year with the old machine. In addition the new machine is more efficient with a 50% operating cost compared to 65% for the old machine. Unit, price, price inflation and cost inflation will be now different between the two. Price $100,000 Freight $0 Installation $25,000 Change in NWC $5,000 Sale of old machine $30,000 Operating flows and inflation rates New Sales volume 11,000 Year 0 sales price $10.00 Operating costs 50% Price inflation 4% Cost inflation 2% Old 9,000 $10.00 65% 4% 2% Salvage value, tax rate and cost of capital New old Salvage value $30,000 $20,000 Tax rate 40% 40% Cost of capital 10% 10% Old depreciation 3 year MACRS straight line Current book value $30,000 Life 4 years 2 years left MACRS schedule: Year 1 = 33% Year 2 = 45% Year 3 = 15% Year 4 = 7% 1. If the old machine is replaced with a new machine, what is the initial cash outlay in year O? a. $115,000 b. $120,000 C. $90,000 d. $100,000 e. $70,000 2. What is the net operating cash flow in year 1? a. $50,000 b. $45,000 C. $46,121 d. $26,064 e. $25,122 3. What are the nonoperating cash flows in year 2 and 4? a $10,000 and $12,000 b. $12,000 and $23,000 C. $6,000 and $17,000 d. $6,000 and $25,000 4. What is the projects net cash flow in year 3? a. $50,000 b. $16,161 C. $46,762 d. $16,761 e. $35,145 5. What is the projects total net cash flow in year 4? a. $172,450 b. $133,151 C. $139,431 d. $144,710 e. $125,332 6. What is the NPV of replacing the old machine is a new machine? a. $136,740 b. $118,436 C. $141,310 d. $132,227 e. $125,655Step by Step Solution
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