Table $11\mathrm{.}4$

Degnan Dance Company, Inc., a manufacturer of dance and exercise apparel, is considering replacing an existing piece of equipment with a more sophisticated machine. The following information is given.

The firm pays $210$ percent taxes on ordinary income and capital gains.

Calculate the book value of the existing asset being replaced.

Calculate the tax effect from the sale of the existing asset.

Given the information in Table $11\mathrm{.}4,$ compute the initial investment.

Calculate the incremental depreciation.

Calculate the incremental earnings before depreciation and taxes.

Compute the annual cash flows for the existing and proposed machine.

Determine the incremental after$-$tax cash flow for years $1$ through $6.$

What is the payback on this replacement decision?

Assuming a WACC of $12\%,$ calculate the net present value.

Calculate the Internal Rate of Return.

Replace or Reject? Explain...

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