(Please show work and equations used)

Central Food Inc., is considering replacing its current production line to improve efficiency. The new production line will cost $650,000 plus $50,000 for shipping and installation. The current production line has a book value of $0 and an estimated market value of $119,666.67. CF uses straight-line depreciation method and has a marginal tax rate of 25% for net income and capital gain.

CFs current annual sales is $433,000 and by estimation, the new production line can increase CFs annual sales by about 28%. NWC will rise by $35,000. And due to higher maintenance cost, the operating costs will rise by $15,000 each year. In 11 years the production line currently under consideration can be sold for $110,000.

CFs require rate of return is 11%.

For this replacement project:

1) Find initial investment and all the future incremental cash flows. [25 pts]

** ignore the depreciation on the old production line when finding the increase in depreciation for this replacement project.

2) Put all cash flows in #1 on a timeline. [5 pts]

3) Find the discounted payback period. If the threshold is 4.5 years, should CF accept his project? [20 pts]

4) Find the net present value. Should CF accept this project? [20 pts]

5) Find the profitability index. Should CF accept this project? [10 pts]

6) Find the modified internal rate of return. Should CF accept this project? [20 pts]