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The blue highlighted area is the answers I need. . Arroy Snackfoods is considering replacing a five-year-old machine that originally cost $75,000. It was being
The blue highlighted area is the answers I need.
. Arroy Snackfoods is considering replacing a five-year-old machine that originally cost $75,000. It was being depreciated using straight-line to an expected salvage value of zero over its original 10-year life, and could now be sold for $40,000. The replacement machine would cost $215,000 and have a five-year expected life. It would be depreciated using the MACRS 5-year class life. The expected salvage value of this machine after 5 years is $30,000. The new machine is expected to operate much more efficiently, saving $6,000 per year in energy costs. In addition, it will eliminate one salaried position saving another $68,000 annually. The firm's marginal tax rate is 25% and the WACC is 9.5%. a. Set up an operating cash flow statement, and calculate the payback, discounted payback, NPV, IRR, and MIRR of the replacement project. Should the project be accepted? b. At what discount rate would you be indifferent between keeping the existing equipment and purchasing the new equipment? \begin{tabular}{|c|c|c|c|c|c|c|c|c|} \hline \multicolumn{3}{|c|}{ Arroy Snackfoods } & & & & & & \multirow[b]{4}{*}{ Year 5} \\ \hline \multirow{3}{*}{\begin{tabular}{l} Cost \\ Salvage for Depreciation \end{tabular}} & \multirow{2}{*}{\begin{tabular}{l} Old \\ 75,000 \end{tabular}} & New & \multirow{2}{*}{\multicolumn{5}{|c|}{ Remaining Depreciation Schedules }} & \\ \hline & & 215,000 & & & & & & \\ \hline & & & & Year 1 & Year 2 & Year 3 & Year 4 & \\ \hline Current Salvage Value & & & New & & & & & \\ \hline Actual Expected Salvage & 40,000 & 30,000 & Old & & & & & \\ \hline Orignal Life & 10 years & 5 years & Difference & & & & & \\ \hline Remaining Life & 5 years & 5 years & & & & & & \\ \hline Depreciation Method & Straight-Line & MACRS & & TCF C & Iculation & & & \\ \hline Depreciable Life & & 5 years & & Old & New & & & \\ \hline Current Book Value & & 215,000 & Salvage & & & & & \\ \hline Energy Savings & & 6,000 & Book & & & & & \\ \hline Salary Savings & & 68,000 & Taxable & & & & & \\ \hline Tax Rate & 25% & 25% & Taxes & & & & & \\ \hline WACC & & 9.50% & After-Tax Salvage & & & & & \\ \hline & Year 0 & Year 1 & Year 2 & Year 3 & Year 4 & Year 5 & & \\ \hline Revenue & & & & & & & & \\ \hline Expenses & & & & & & & & \\ \hline Depreciation & & & & & & & & \\ \hline Pre-Tax Operating Income & & & & & & & & \\ \hline Taxes & & & & & & & & \\ \hline Add: Depreciation & & & & & & & & \\ \hline After-Tax Operating Cash Flow & & & & & & & & \\ \hline Terminal Cash Flow & & & & & & & & \\ \hline Total After-Tax Cash Flow & & & & & & & & \\ \hline & & & & & & & & \\ \hline Payback Period & & & & & & & & \\ \hline Discounted Payback Period & & & & & & & & \\ \hline Net Present Value & 84,854 & & & & & & & \\ \hline Internal Rate of Return & 25.87% & & & & & & & \\ \hline Modified Internal Rate of Return & 18.48% & & & & & & & \\ \hline \end{tabular}Step by Step Solution
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