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A Capital Budgeting Problem A cargo company is evaluating whether to replace an existing cargo ship with a new ship or repair the current ship. Its calculations show that investing in a new ship is a zero NPV project. It wants your help to estimate the NPV of the repair option. The following information is provided. Total repair cost=$810,000 Total annual operating costs=$1,100,000 Expected annual increase in sales and costs=4% Annual revenue=$1,200,000 Tax rate=21% Expected life of renovated ship=12 years Expected salvage value after 12 years=$0 The seven-year MACRS schedule will be used for depreciation Firm's cost of capital=11% Apply all capital budgeting techniques. B6 X & fox fx 0.11 A D B 13 Investment 14 Revenue 15 Less cost 16 Less depreciation 17 NOPBT 18 Less taxes 19 NOPAT 20 Add back dep'n 21 Add/subtract NWC needs 22 Salvage value 23 Project cash flows 24 PV 25 NPV 26 IRR 27 Payback 28 PV 29 Discounted PB 30 MIRR 31 PI 32 33 34