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8. Replacement analysis Purple Whale Inc. is a company that produces iGadgets, among several other products. Suppose that Purple Whale Inc. considers replacing its old machine used to make iGadgets with a more efficient one, which would cost $1,700 and require $380 annually in operating costs except depreciation. After-tax salvage value of the old machine is $700 while its annual operating costs except depreciation are $1,000. Assume that, regardless of the age of the equipment, Purple Whale Inc.'s sales revenues are fixed at $4,500 and depreclation on the old machine is $700. Assume also that the tax rate is 40% and the project's risk-adjusted cost of capital average cot of capital (WACC) and equals 10%. , is the same as meghted Based on the data, net cash flows (NCFs) before replacement are years. and they are constant over four Although Purple Whale Inc.'s NCFs before replacement are the same over the 4-year period, its NCFs after replacement vary annually. The following table shows depreciation rates over four years. Year 1 Year 2 Year 3 Year 4 33.33% 44.45% 14.81% 7.41% Depreciation rates in each year. Hint: Round your answers to the nearest dollar and remember to enter a minus sign if the calculated value is negative. Year 0 Year 1 Year 2 Year 3 Year 4 $1,700 $700 New machine cost After-tax salvage value, old machine Sales revenues Operating costs except depreciation Operating income After-tax operating income Net cash flows after replacement (adding back depreciation) Incremental Cash Flows $4,500 $4,500 $4,500 $4.500 380 $380 $380 $380 test evaluate the incremental fows by calculating the net present value (NPV), the internal rate of return (IRR), and the modified IRR (MIRR) Assume again that the cost of financing the new project is the same as the WACC and equals 10%. Hint: Use a spreadsheet program's functions or use a financial calculator for this task NPV IRR MIRR