1. TheReneckeCo. is planning to replace their printing equipment with a new computerized version that will print more copies at lower cost. The cost of the new machine will be $600,000 including installation. They can sell their fully depreciated existing machine for approximately $100,000. The new machine will require net working capital of $80,000 in period 0. What initial outlaywill be required in period 0 for this new equipment? Assume a tax rate of 35%.

The new equipment is expected to increase sales by $350,000 but costs are also expected to increase by $100,000. At the end of the five-year project, they could sell the equipment for $50,000. Should they replace the printing equipment? Assume the cost of capital is 16%.

?

Yes, NPV = $108,155,77

Yes, NPV =$92,682.09

$54,930.05

No, NPV = 28,500.22