question attached

You recently began working for Orange Fizz Company. Company management is contemplating the replacement of its existing, three-year old bottling machines that originally cost $2,400,000 with newer and more efficient ones. The old, existing machines were placed on the MACRS five-year class life depreciation schedule three years ago. Total operating costs for the old bottling machines are $1,100,000 per year and Orange Fizz will bottle 12 million bottles per year each year for the next seven years. The firm expects to realize a $100,000 return from salvaging the old machines in 7 years; however, the existing machine may be sold now to another firm in the industry for $400,000. It retained, the old machines would be operational for the next 7-years.

The new machines, if purchased, would cost $2,600,000 and would be placed on a MACRS five-year class life depreciation but will be kept in operation for the next 7 years. The machines would have an estimated salvage value of $270,000 in seven years. Total annual savings in operating costs of $570,000 will be realized if the new bottling machines are installed. The company is in the 40% tax bracket, and it has a 10% WACC.

Should the replacement be made? Use a relative (incremental) cash flow analysis similar to what we did in class and in your text and determine the NPV and IRR for the replacement project.

You recently began working for Orange Fizz Company. Company management is contemplating the replacement of its existing, three-year old bottling machines that originally cost $2,400,000 with newer and more efficient ones. The old, existing machines were placed on the MACRS five-year class life depreciation schedule three years ago. Total operating costs for the old bottling machines are $1,100,000 per year and Orange Fizz will bottle 12 million bottles per year each year for the next seven years. The firm expects to realize a $100,000 return from salvaging the old machines in 7 years; however, the existing machine may be sold now to another firm in the industry for $400,000. It retained, the old machines would be operational for the next 7-years. The new machines, if purchased, would cost $2,600,000 and would be placed on a MACRS five-year class life depreciation but will be kept in operation for the next 7 years. The machines would have an estimated salvage value of $270,000 in seven years. Total annual savings in operating costs of $570,000 will be realized if the new bottling machines are installed. The company is in the 40% tax bracket, and it has a 10% WACC. Should the replacement be made? Use a relative (incremental) cash flow analysis similar to what we did in class and in your text and determine the NPV and IRR for the replacement project