Problem 9-34 Project Evaluation (LO2, 3)

PC Shopping Network may upgrade its modem pool. It last upgraded 3 years ago, when it spent $116 million on equipment with an assumed life of 6 years and an assumed salvage value of $24 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 $149 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 $25 million per year and decrease operating costs by $9 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 14%. (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 0 $ million

b.	What is the incremental cash flow in year 1? (Round your answer to 3 decimal places.)
	The incremental cash flow in year 1 $ 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 3? (Round your answer to 3 decimal places.)
	The incremental cash flow in year 3 $ million

c.	What is the NPV of the replacement project? (Round your answer to 2 decimal places.)
	NPV $ million

	What is the IRR of the replacement project? (Round your answer to 2 decimal places.)
	IRR %