Supreme Chips is a manufacturer of prototype chips based in Dublin, Ireland Next year, in 2021, Supreme Chips expects to deliver 610 prototype chips at an average price of $105,000. Supreme Chips' marketing vice president forecasts growth of 80 prototype chips per year through 2027. That is, demand will be 610 in 2021, 690 in 2022,770 in 2023 , and 50 on (Click the icon to view additional information) The following data on the two options are available EIIt (Click the icon to view the data on the two options available and additional information) Present Value. of $1 table Present Value of Annuty of 51 table Euture Value of Annuty of 51 table Read the reguirements More info The plant cannot produce more than 590 prototype chips annually. To meet future demand, Supreme Chips must either modernize the plant or replace it The old equipment is fully depreciated and can be sold for $4,000,000 if the plant is replaced. If the plant is modernized, the costs to modernize it are to be capitalized and depreciated over the useful life of the modernized plant. The old equipment is retained as part of the "modernize" alternative Supreme Chips uses straight-line depreciation, assuming zero terminal disposal value. For simplicity, we assume no change in prices or costs in future years. The investment will be made at the beginning of 2021, and all transactions thereafter occur on the last day of the year Supreme Chips' required rate of return is 16%. There is no difterence between the "modernize" and "replace" alternatives in terms of required working capital Supreme Chips has a special waiver on income taxes until 2027 Requirements 1. Calculate the cash inflows and outflows of the "modernize" and "replace" alternatives over the 2021- 2027 period. 2. Calculate payback period for the "modernize" and "replace" alternatives. 3. Calculate net present value of the "modernize" and "replace" alternatives 4. What factors should Supreme Chips consider in choosing between the alternatives? Supreme Chips is a manufacturer of prototype chips based in Dublin, Ireland Next year, in 2021, Supreme Chips expects to deliver 610 prototype chips at an average price of $105,000. Supreme Chips' marketing vice president forecasts growth of 80 prototype chips per year through 2027. That is, demand will be 610 in 2021, 690 in 2022,770 in 2023 , and 50 on (Click the icon to view additional information) The following data on the two options are available EIIt (Click the icon to view the data on the two options available and additional information) Present Value. of $1 table Present Value of Annuty of 51 table Euture Value of Annuty of 51 table Read the reguirements More info The plant cannot produce more than 590 prototype chips annually. To meet future demand, Supreme Chips must either modernize the plant or replace it The old equipment is fully depreciated and can be sold for $4,000,000 if the plant is replaced. If the plant is modernized, the costs to modernize it are to be capitalized and depreciated over the useful life of the modernized plant. The old equipment is retained as part of the "modernize" alternative Supreme Chips uses straight-line depreciation, assuming zero terminal disposal value. For simplicity, we assume no change in prices or costs in future years. The investment will be made at the beginning of 2021, and all transactions thereafter occur on the last day of the year Supreme Chips' required rate of return is 16%. There is no difterence between the "modernize" and "replace" alternatives in terms of required working capital Supreme Chips has a special waiver on income taxes until 2027 Requirements 1. Calculate the cash inflows and outflows of the "modernize" and "replace" alternatives over the 2021- 2027 period. 2. Calculate payback period for the "modernize" and "replace" alternatives. 3. Calculate net present value of the "modernize" and "replace" alternatives 4. What factors should Supreme Chips consider in choosing between the alternatives
