Solve all problems in the Excel file provided

Problem 3

ABC Inc. wishes to buy new machinery that would cost $166,000, but it would lead to increased output, higher sales, and higher costs. Moreover, the firm would receive $100,000 after taxes for the old machine. The new machine would result in sales of $120,000 per year versus old sales of $70,000, and the new costs would be $40,000 versus old costs of $20,000. Finally, the old machine was being depreciated at the rate of $10,000 per year, but the new machine would have $30,000 of annual depreciation. The marginal tax rate is 22 percent and WACC is 8 percent. Based on these figures, and assuming the new and old machines both have a life of four years, find the incremental cash flows.

N13 X v fx A B C D E F G H 109 Problem 3 - Evaluating a Replacement Project 110 111 Year 0 Year 1 Year 2 Year 3 Year 4 112 Acquisition - 5 Year Life 113 New Machinery ?? 114 Sale - Old Machine ?? 115 Total Initial Investment ?? 116 117 118 New Sales ?? 1 :3 1 19 Old Sales ?? 120 Change in Sales ? ? 27 ? ? 121 122 New Costs ?? ?? ?? 383 123 Old Costs ? ? ? ? ?? 124 Change in Costs ?? ?? 125 126 New Depreciation ?? ?? ?? ?? 127 Old Depreciation ?? 128 Change in Depreciation ?? ?? 22 ?? 129 130 Earnings Before Income Tax (EBIT) ?? ?? ?? ?? 131 132 Tax Rate ?? ?? ?? 133 Total Taxes ?? ??N13 A B C D E F G H 134 135 Net Operating Profits (NOPAT) ?? ?? ?? ?? 136 137 Add Back Depreciation ?? ?? ?? ?? 138 Operating Cash Flow ?? 22 22 139 140 141 Net Operating Working Capital ?? ?? ?? ?? ?? 142 Increase in NOWC ?? ?? ?? ?? ?? 143 144 Total Annual Project Cash Flow ?? ? ? 22 ?? 145 146 147 Free Cash Flow 22 ?? ?? ?? ?? 148 Required Rate of Return (WACC) ?? NPV ?? IRR