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Please help with all parts, thanks! PC Shopping Network may upgrade its modem pool. It last upgraded 2 years ago, when it spent $155 million
Please help with all parts, thanks!
PC Shopping Network may upgrade its modem pool. It last upgraded 2 years ago, when it spent $155 million on equipment with an assumed life of 5 years and an assumed salvage value of $25million for tax purposes. The firm uses straight-line depreciation. The old equipment can be sold today for $110 million. A new modem pool can be installed today for $180 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 sales by $24 million per year and decrease operating costs by $12 milion per year. At the end of 3 years, the new equipment will be worthless. Assume the firm's tax rate is 30% and the discount rate for projects of this sort is 15% Required: a. What is the net cash flow at time 0 if the old equipment is replaced? Note: Negotive omounts should be indicated by o minus sign. Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. b. What are the incremental cash flows in years: (i) 1; (ii) 2; (iii) 3 ? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. c. What is the NPV of the replacement project? Note: Do not round intermediote colculations. Enter the NPV in millions rounded to 2 decimal ploces. d. What is the IRR of the replacement project? Note: Do not round intermediote colculotions. Enter the IRR os o percent rounded to 2 decimal places Step by Step Solution
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