years 0 1 2 3 4 5 6 7 8 Sales Costs Depreciation Pre-tax CF Tax After-tax CF Recover depreciation Change in NWC CapEx SV new SV tax SV of old SV tax SV of old lost SV tax Total Cash Flow Discounted CFPintail Products, Inc. is negotiating for the purchase of a new piece of equipment for its current operations. Pintail has a bid which specifies that the equipment could be purchased for $90,000. Other information about the project includes the following: The new equipment will replace existing old equipment that has a current market (i.e., resale) value of 520,000. That is what the old equipment can be sold for, even though its current book value may be different and must be calculated separately. If the new equipment is purchased, the old equipment will be sold. The old equipment was purchased for 540,000 and is being depreciated on a straight-line basis over ten years. According to straight-line depreciation method, the purchase price of equipment is depreciated by equal amounts each year to its expected salvage (sale) price at the end of its expected life. The old equipment is expected to last another eight years from now if the company continues to operate it, and is expected to have no resale value at the end of the eight years of its remaining life. The old equipment is currently five years old, that is, it was purchased five years ago. Therefore, there is five years of depreciation of the old equipment remaining. The new equipment is expected to have a positive effect on revenue (or sales). Revenues are expected to increase by 55,000 per year for each year of operations of the equipment as compared to the operations of the old equipment. That is, sales for each year of the operations of the new equipment are by 55,000 higher than they would have been with old equipment. Additionally, and similarly, before-tax operating costs will be reduced by 510,000 per year for each year of the operations of the new equipment. Assume that the revenues and cost savings incurred during the year of operations occur at year-end. The expected useful life of the new equipment is eight years. The new equipment will be depreciated to its expected salvage value using straight-line depreciation over the eight years of its expected life. Pintail expects to sell the new equipment for 510,000 at the end of its useful life of eight years. The increased sales will give rise to an aggregate increase in accounts receivable, inventory, and cash equal to 25% of the amount by which sales increase. That increase in current asset occurs at the beginning of the year of the respective increase in sales. That is, if sales increase during year 1 and are reflected at the end of year 1, the corresponding increase in current assets must occur at the beginning of year 1, and will coincide effectively with the end of year 0. Furthermore, trade credit (that is, accounts payable) will increase by an amount equal to 10% of the amount by which sales increase. Similarly, the increase in accounts payable occurs at the beginning of the year of the corresponding increase in sales. This investment in working capital will be recovered in full at the end of the project's life. Pintail operations are subject to the ordinary income tax rate of federal and state taxes equal to 25%. The after-tax nominal cost of capital for this project is 10% per year. Calculate the NPV of replacing the cld machine with the new one by filling out the capital budgeting template provided in Excel format with the homework assignment