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You are a financial analyst at the Humongous Project Company (HPC). Four years ago, HPC purchased a machine at an installed cost of $70,000; the

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You are a financial analyst at the Humongous Project Company (HPC). Four years ago, HPC purchased a machine at an installed cost of $70,000; the machine is being depreciated using MACRS with a 5-year recovery period. The machine has six years of useful life remaining and could be sold today for $403,000 after removal and cleanup costs. A new, more efficient machine can be purchased for $280,000. The new machine would cost $10,000 to install and would have a useful life of 6 years; it would be depreciated using a 5-year MACRS depreciation recovery schedule. At the end of the six years, it would have an estimated salvage value of $60,000. Because of the increased output of the new machine, the firm's sales would rise, with a corresponding increase in accounts receivable of $40,000, an increase in inventories of $25,000, and an increase in accounts payable of $35,000. The following chart shows the expected revenues and operating costs for the new and old machine for each year. HPC's applicable tax rate is 21%. HPC's weighted-averagecost-of-capital is 14%. HPC uses a 4-year payback period rule, along with NPV, Pl, and IRR. The MACRS 5-year property depreciation schedules are as follows: . Determine the initial investment associated with the proposed investment decision. b. Calculate the incremental operating cash flows for years I through 6 associated with the proposed replacement. c. Calculate the terminal cash flow associated with the proposed replacement decision. d. Show the relevant cash flows on a timeline. e. Compute the NPV, IRR, Profitability Index, and payback period for this project. Should HPC accept this replacement decision? Why or why not

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