PC Shopping Network may upgrade its modem pool. It last upgraded 2 years ago, when it...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
PC Shopping Network may upgrade its modem pool. It last upgraded 2 years ago, when it spent $145 million on equipment with an assumed life of 5 years and an assumed salvage value of $15 million for tax purposes. The firm uses straight-line depreciation. The old equipment can be sold today for $100 million. A new modem pool can be installed today for $180 million. This will have a 3-year life and will be depreciated to zero using straight-line depreciation. The new equipment will enable the firm to increase sales by $27 million per year and decrease operating costs by $14 million per year. At the end of 3 years, the new equipment will be worthless. Assume the firm's tax rate is 30% and the discount rate for projects of this sort is 8%. Required: a. What is the net cash flow at time O if the old equipment is replaced? Note: Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. b. What are the incremental cash flows in years: (i) 1; (ii) 2; (iii) 3? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. c. What is the NPV of the replacement project? Note: Do not round intermediate calculations. Enter the NPV in millions rounded to 2 decimal places. d. What is the IRR of the replacement project? Note: Do not round intermediate calculations. Enter the IRR as a percent rounded to 2 decimal places. a. Net cash flow b. Incremental cash flow c. NPV d. IRR $ $ million 38.90 million per year 2.35 million 9.32 % PC Shopping Network may upgrade its modem pool. It last upgraded 2 years ago, when it spent $145 million on equipment with an assumed life of 5 years and an assumed salvage value of $15 million for tax purposes. The firm uses straight-line depreciation. The old equipment can be sold today for $100 million. A new modem pool can be installed today for $180 million. This will have a 3-year life and will be depreciated to zero using straight-line depreciation. The new equipment will enable the firm to increase sales by $27 million per year and decrease operating costs by $14 million per year. At the end of 3 years, the new equipment will be worthless. Assume the firm's tax rate is 30% and the discount rate for projects of this sort is 8%. Required: a. What is the net cash flow at time O if the old equipment is replaced? Note: Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. b. What are the incremental cash flows in years: (i) 1; (ii) 2; (iii) 3? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. c. What is the NPV of the replacement project? Note: Do not round intermediate calculations. Enter the NPV in millions rounded to 2 decimal places. d. What is the IRR of the replacement project? Note: Do not round intermediate calculations. Enter the IRR as a percent rounded to 2 decimal places. a. Net cash flow b. Incremental cash flow c. NPV d. IRR $ $ million 38.90 million per year 2.35 million 9.32 %
Expert Answer:
Related Book For
College Accounting A Practical Approach
ISBN: 978-0132564441
11th Canadian Edition
Authors: Jeffrey Slater, Brian Zwicker
Posted Date:
Students also viewed these finance questions
-
The following data is given for Debbies Dance Studio of Vernon: Adjustment Data a. Insurance expired, $300 b. Dance supplies on hand, $700 c. Amortization on dance equipment, $500 d. Salaries earned...
-
The following data is given: (a) Use linear least-squares regression to determine the coefficients m and b in the function y = mx + b that best fits the data. (b) Make a plot that shows the function...
-
The following data is provided for June 2019 Production in June 5.000 (in units) Sales in June 5.000 (in units) Direct materials 100.000 Direct labor 70.000 Fixed General industrialized costs 40.000...
-
Prove that the function x2 x - 1 | f (x) = x 1)(x 2) is differentiable for all r E (-0, 1) U (1, 2) U (2, ). - |
-
How does the Internet help consumers to spread word-of-mouth?
-
Gainesville Cigar stocks Cuban cigars that have variable lead times because of the difficulty in importing the product: Lead time is normally distributed with an average of 6 weeks and a standard...
-
Christopher Boling was seriously injured in 2008 when vapors escaping from a gas can ignited. He filed a products liability claim against the manufacturer. To fund the litigation, Boling entered into...
-
Shmi Distributing Company completed the following merchandising transactions in the month of April. At the beginning of April, the ledger of Shmi showed Cash of $8,000 and Common Stock of $8,000....
-
Make relational model from this ER diagram 2. Convert the following ER diagram into relations/tables: row seat toCust SSNo Bookings Customers phone name Flights to Flt addr number aircraft day
-
Glen Pool Club, Inc., has an installment loan outstanding with a current balance of $150.000. The company makes monthly installments of $1,543, which include interest computed at an annual rate of 6...
-
Using the Kosaraju's algorithm, find the strong components of the following directed graph. Please show your work.
-
If you have a cell that has the genotype aaBbCC, identify the genotype of one cell that could result from mitosis.
-
What effect of tax changes in Ontario have on the supplier company revenue or costs?
-
A 1.0-g bullet is observed to travel at 0.95c by a momentum detector that is accurate to 3%. What is the minimum uncertainty in the position of the bullet?
-
What type of data analytics best goes with this accounting question: Will the company be profitable if its product is approved by the FDA?
-
1. Identify the type(s) of hubs that you would use on this network (provide a brief justificat 2. Identify the type(s) of switches that you would use on this network (provide a brief justification)....
-
The message 1101 is received. Assuming the following error correction scheme, what is the original data? Data Code 00 1000 01 0101 10 0110 11 1001 00 01 10 11 Cannot be determined
-
To balance the chemical equation SiH3 + O2 SiO2 + HO, you could introduce coefficients a, b, c, d and write aSiH3 + bO2 cSiO + dHO then write linear equations for each element. The equation for Si...
-
The Montreal Music Company Ltd. has a fiscal year that ends March 31. During the year ending March 31, 2012, the company had the following transactions involving these assets: Buildings. No...
-
Before adjustment: Given For the current year, amortization on equipment is $800. Required a. Which of the three T accounts is not affected? b. Which title is a contra-asset? c. Draw a transaction...
-
From the adjustments section of a worksheet presented here, prepare adjusting journal entries for the end of December. Adjustments Dr. Cr. Prepaid Rent Office Supplies Accumulated Amortization,...
-
Figure 7.33 shows a thin-walled glass of milk, which is taken out of the refrigerator at a uniform temperature of \(3^{\circ} \mathrm{C}\) and is placed in a large pan filled with hot water at...
-
The junction of a thermocouple can be approximated as a sphere with a diameter of \(1 \mathrm{~mm}\). As shown in Figure 7.32, the thermocouple is used to measure the temperature of a gas stream. For...
-
Figure 7.46 represents the temperature dynamics of two adjacent objects, where the thermal capacitances of the objects are \(C_{1}\) and \(C_{2}\), respectively. Assume that the temperatures of both...
Study smarter with the SolutionInn App