Question: PC Shopping Network may upgrade its modem pool. It last upgraded 3 years ago, when it spent $105 million on equipment with an assumed life

 PC Shopping Network may upgrade its modem pool. It last upgraded

PC Shopping Network may upgrade its modem pool. It last upgraded 3 years ago, when it spent $105 million on equipment with an assumed life of 6 years and an assumed salvage value of $22 million for tax purposes. The firm uses straight-line depreciation. The old equipment can be sold today for $74 million. A new modem pool can be installed today for $145 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 $31 million per year and decrease operating costs by $5 million per year. At the end of 3 years, the new equipment will be worthless. Assume the firm's tax rate is 35% and the discount rate for projects of this sort is 11%. (Enter your answers in millions. For example, an answer of $13,000,000 should be entered as 13. Use minus sign to enter cash outflows, if any.) a. What is the net cash flow at time 0 if the old equipment is replaced? (Round your answer to 2 decimal places.) The net cash flow at time o million b. What is the incremental cash flow in year 17 (Round your answer to 3 decimal places.) The incremental cash flow in year 1 s million What is the incremental cash flow in year 2? (Round your answer to 3 decimal places.) The incremental cash flow in year 2 million What is the incremental cash flow in year 39 (Round your answer to 3 decimal places.) The incremental cash flow in Year 3 million

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!