Problem $9-34$ Project Evaluation $($LO$2,3)$PC Shopping Network may upgrade its modem pool. It last upgraded

$2$ years ago, when it spent $$122$ 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 $$76$ million. A new modem pool can

be installed today for $$160$ 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 $$20$

million per year and decrease operating costs by $$12$ 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 $10\%.($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?$($Do not round intermediate

calculations. Round your answer to $2$ decimal places.$)$

$$b$-1.$What is the incremental cash flow in

year $1?($Do not round intermediate calculations. Round

your answer

to$2$decimal

places.$)$

$$b$-2.$What is the incremental cash flow in

year $2?($Do not round intermediate calculations. Round

your answer

to$2$decimal

places.$)$

$$b$-3.$What is the incremental cash flow in

year $3?($Do not round intermediate calculations. Round

your answer

to$2$decimal

places.$)$

$$c$-1.$What is the NPV of the replacement

project?$($Do not round intermediate calculations.Round

your answer to $2$ decimal places.$)$

$$c$-2.$What is the IRR of the replacement

project?$($Do not round intermediate calculations.

Round your answer to $2$ decimal places.$)$

$$d$.$Now ignore straight$-$line depreciation

and assume that both new and old equipment are in an asset class

with a CCA rate of $30\%.$ PC Shopping Network has other assets in

this asset class. What is the NPV of the replacement project? For

this part, assume that the new equipment will have a salvage value

of $$29$ million at the end of $3$ years.$($Do not round

intermediate calculations. Round your answer to $2$ decimal

places.$)$

$$Note: I would appreciate if all steps were shown to help me

understand where the answer is coming from.