The management of Tri-County Air Taxi, Inc., is considering the replacement of an old machine used in its helicopter repair facility. It is fully depreciated but it can be used by the corporation through 20x5. If management decides to replace the old machine, James Transportation Company has offered to purchase it for $65,000 on the replacement date. The old machine would have no salvage value in 20x5. If the replacement occurs, a new machine would be acquired from Hillcrest Industries on December 31, 20x1. The purchase price of $1,000,000 for the new machine would be paid in cash at the time of replacement. Due to the increased efficiency of the new machine, estimated annual cash savings of $320,000 would be generated through 20x5, the end of its expected useful life. The new machine is not expected to have any salvage value at the end of 20x5. Tri-County's management requires all investments to earn a 14 percent after-tax return. The company's tax rate is 30 percent. The new machine would be classified as three-year property for MACRS purposes. Use Appendix A and Exhibit 16-9. for your reference. (Use appropriate factor(s) from the tables provided.) Required: 1. Compute the net present value of the machine replacement investment. 3. Compute the payback period for the replacement of the machine. 4. How much would the salvage value of the new machine have to be on December 31, 20x5, in order to turn the machine replacement into an acceptable investment? Complete this question by entering your answers in the tabs below. Required 1 Required 3 Required 4 Compute the net present value of the machine replacement investment. (Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to the nearest whole dollar.) Net present value Required 1 Required 3 Required 4 Compute the payback period for the replacement of the machine. (Round your answer to 1 decimal place.) Payback period years Required 1 Required 3 Required 4 How much would the salvage value of the new machine have to be on December 31, 20x5, in order to turn the machine replacement into an acceptable investment? (Round your intermediate calculations and final answer to the nearest whole dollar.) Salvage value of the new machine Exhibit 16-9 Selected MACRS Depreciation Percentages as Computed by the IRS (incorporates half-year convention; also incorporates recent modifications in the tax laws) MACRS Property Class Year 3-year 5-year 7-year 10-year 1 33.33% 20.00% 14.29% 10.00% 2 44.45 32.00 24.49 18.00 34 14.81* 19.20 17.49 14.40 7.41 11.52" 12.49 11.52 5 11.52 8.93* 9.22 6 5.76 8.92 7.37 7 8.93 6.55* 8 4.46 6.55 9 10 6.56 6.55 11 3.28 *Denotes the year during which the depreciation method switches to the straight-line method. Source: IRS Publication 946, entitled "How to Depreciate Property." Future Value and Present Value Tables Table I Future Value of $1.00(1+r)^ Period 4% 6% 8% 10% 12% 14% 20% 1 1.040 1.060 1.080 1.100 1.120 1.140 1.200 2 1.082 1.124 1.166 1.210 1.254 1.300 1.440 3 1.125 1.191 1.260 1.331 1.405 1.482 1.728 4 1.170 1.263 1.361 1.464 1.574 1.689 2.074 5 1.217 1.338 1.469 1.611 1.762 1.925 2.488 6 1.265 1.419 1.587 1.772 1.974 2.195 2.986 7 1.316 1.504 1.714 1.949 2.211 2.502 3.583 S 1.369 1.594 1.851 2.144 2.476 2.853 4.300 9 1.423 1.690 1.999 2.359 2.773 3.252 5.160 10 1.480 1.791 2.159 2.594 3.106 3.707 6.192 11 1.540 1.898 2.332 2.853 3.479 4.226 7.430 12 1.601 2.012 2.518 3.139 3.896 4.818 8.916 13 1.665 2.133 2.720 3.452 4.364 5.492 10.699 14 1.732 2.261 2.937 3.798 4.887 6.261 12.839 15 1.801 2.397 3.172 4.177 5.474 7.138 15.407 20 2.191 3.207 4.661 6.728 9.646 13.743 38.338 30 3.243 5.744 10.063 17.450 29.960 50.950 237.380 40 4.801 10.286 21.725 45.260 93.051 188.880 1,469.800 Table II (1 + r) - 1 Future Value of a Series of $1.00 Cash Flows (Ordinary Annuity) Period 4% 6% 8% 10% 12% 14% 20% 1 1.000 1.000 1.000 1.000 1.000 1.000 1.000 2 2.040 2.060 2.080 2.100 2.120 2.140 2.220 3 3.122 3.184 3.246 3.310 3.374 3.440 3.640 4 4.247 4.375 4.506 4.641 4.779 4.921 5.368 5 5.416 5.637 5.867 6.105 6.353 6.610 7.442 6 6.633 6.975 7.336 7.716 8.115 8.536 9.930 7 7.898 8.394 8.923 9.487 10.089 10.730 12.916 S 9.214 9.898 10.637 11.436 12.300 13.233 16.499 9 10.583 11.491 12.488 13.580 14.776 16.085 20.799 10 12.006 13.181 14.487 15.938 17.549 19.337 25.959 11 13.486 14.972 16.646 18.531 20.655 23.045 32.150 12 15.026 16.870 18.977 21.385 24.133 27.271 39.580 13 16.627 18.882 21.495 24.523 28.029 32.089 48.497 14 18.292 21.015 24.215 27.976 32.393 37.581 59.196 15 20.024 23.276 27.152 31.773 37.280 43.842 72.035 20 29.778 36.778 45.762 57.276 75.052 91.025 186.690 30 56.085 79.058 113.283 164.496 241.330 356.790 1,181.900 40 95.026 154.762 259.057 442.597 767.090 1,342.000 7,343.900 Table III Present Value of $1.00 1 (1 + r)" Period 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 26% 28% 30% 32% 1 .962 .943 .926 .909 .893 .877 .862 .847 .833 2 .925 .890 .857 .826 .797 .769 .743 .718 .694 .820 .672 .806 3 .889 .840 .794 .751 .712 .675 .641 .609 .579 .551 .524 .500 .477 4 .855 .792 .735 .683 .636 .592 .552 .516 .482 5 .822 .747 .681 .621 .567 .519 .476 .437 .402 .451 .370 .794 .781 .769 .758 .650 .630 .610 .592 .574 .455 .435 .423 .397 .373 .350 .329 .341 .315 .291 .269 .250 6 .790 .705 .630 .564 .507 7 .760 .665 .583 .513 .452 8 .731 .627 9 10 .463 .386 .322 .456 .410 .370 .335 .303 .275 .250 .400 .354 .314 .279 .249 .222 .198 .540 .467 .404 .351 .305 .266 .233 .703 .592 .500 .424 .361 .308 .263 .225 .194 .676 .558 .270 .227 .191 .162 .227 .207 .189 .178 .159 .143 .204 .179 .157 .139 .123 .108 .167 .144 .125 .108 .094 .082 .137 .116 .099 .085 .073 .062 11 .650 .527 12 .625 13 .601 .429 .497 .397 .319 .257 .208 .469 .368 .290 .229 .350 .287 .237 .195 .168 .182 .145 .116 .162 .135 .112 .094 .079 .066 .056 .047 .137 .112 .092 .076 .062 .052 .043 .036 .093 .075 .061 .050 .040 .033 .027 14 .577 15 .555 .442 .340 .263 .417 .315 .239 .205 .160 .125 .099 .078 .062 .049 .039 .032 .025 .021 .183 .140 .108 .084 .065 .051 .040 .031 .025 .020 .016 20 30 40 224 .456 .308 .174 .099 .312 .215 .149 .057 .104 .073 .051.037 .026 .019 .014 .010 .007 .005 .004 .033 .020 .012 .007 .004 .003 .002 .001 .001 .208 .097 .046 .022 .011 .005 .003 .001 .001 - - - Table IV Present Value of Series of $1.00 Cash Flows - (1+r) Period 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 25% 26% 28% 30% 1 0.962 0.943 0.926 0.909 2 1.886 1.833 3 2.775 2.673 4 3.630 3.465 5 4.452 4.212 6 5.242 4.917 7 6.002 5.582 S 6.733 6.210 9 7.435 6.802 10 8.111 7.360 0.893 0.877 0.862 1.783 1.736 1.690 1.647 1.605 2.577 2.487 2.402 2.322 2.246 3.312 3.170 3.037 2.914 2.798 3.993 3.791 3.605 3.433 3.274 4.623 4.355 4.111 3.889 3.685 3.498 3.326 3.167 3.020 2.951 2.885 2.759 2.643 5.206 4.868 4.564 4.288 4.039 3.812 3.605 3.416 3.242 3.161 3.083 2.937 2.802 5.747 5.335 4.968 4.639 4.344 4.078 3.837 3.619 3.421 3.329 3.241 3.076 2.925 6.247 5.759 5.328 4.946 4.607 4.303 4.031 3.786 3.566 3.463 3.366 3.184 3.019 6.710 6.145 5.650 5.216 4.833 4.494 4.192 3.923 3.682 3.571 3.465 3.269 3.092 0.847 0.833 0.820 0.806 0.800 0.794 0.781 0.769 1.566 1.528 1.492 1.457 1.440 1.424 1.392 1.361 2.174 2.106 2.042 1.981 1.952 1.923 1.868 1.816 2.690 2.589 2.494 2.404 2.362 2.320 2.241 2.166 3.127 2.991 2.864 2.745 2.689 2.635 2.532 2.436 11 8.760 7.887 7.139 12 9.385 8.384 13 9.986 8.853 7.536 7.904 14 10.563 9.295 6.495 5.938 6.814 6.194 7.103 6.424 8.244 7.367 6.628 15 11.118 9.712 8.559 7.606 6.811 6.142 20 30 40 13.590 11.470 9.818 8.514 7.469 6.623 5.929 17.292 13.765 11.258 9.427 8.055 7.003 6.177 19.793 15.046 11.925 9.779 8.244 7.105 6.234 5.453 5.029 4.656 4.327 4.035 3.776 3.656 3.544 3.335 3.147 5.660 5.197 4.793 4.439 4.127 3.851 3.725 3.606 3.387 3.190 5.842 5.342 4.910 4.533 4.203 3.912 3.780 3.656 3.427 3.223 6.002 5.468 5.008 4.611 4.265 3.962 3.824 3.695 3.459 3.249 5.575 5.092 4.675 4.315 4.001 3.859 3.726 3.483 3.268 5.353 4.870 4.460 4.110 3.954 3.808 3.546 3.316 5.517 4.979 4.534 4.160 3.995 3.842 3.569 3.332 5.548 4.997 4.544 4.166 3.999 3.846 3.571 3.333