PC Shopping Network may upgrade its modem pool. It last upgraded 2 years ago, when it spent $100 million on equipment with an assumed life of 5 years and an assumed salvage value of $12 million for tax purposes. The firm uses straight-line depreciation. The old equipment can be sold today for $80 million. A new modem pool can be installed today for $150 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 $10 million per year. At the end of 0 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%.
a. What is the net cash flow at time 0 if the old equipment is replaced? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
b.What are the incremental cash flows in years 1, 2, and 3? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
c.What are the NPV and IRR of the replacement project? (Do not round intermediate calculations. Enter the NPV in millions rounded to 2 decimal places. Enter the IRR as a percent rounded to 2 decimal places.)
Q: You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a...
A: Introduction: Beta less than 1 state that the security price will move with the market and a beta mo...
Q: Discuss the pros and cons of a 30 year, fixed rate loan. In addition, should Congress and state leg...
A: The following are some pros of a 30-year fixed rate loan:Higher tax deduction: The present tax laws ...
Q: The future value of a $100 investment today at 8 percent annual interest compounded semiannually for...
A: Future Value It is the value of an investment after holding the same for specific amount of years ba...
Q: A portfolio manager is considering adding another security to his portfolio. The correlations of the...
A: The more negatively correlate a stock is with the portfolio, the more diversification it's addition ...
Q: (#11) Genoa Company is considering a new investment whose data are shown below. The equipment would ...
A: Approach:We will first estimate the initial investment, i.e cash flow at t = 0We will then plot the ...
Q: Growth Company's current share price is $19.95 and it is expected to pay a $1.00 dividend per share ...
A: Since your question has multiple sub parts, I will address first three of them. Please post the bala...
Q: You are considering an investment in a clothes distributer. The company needs $105,000 today and exp...
A: Initial Cash outflow = C0 = $ 105,000; Cash inflow next year = C1 = $ 120,000If R is the IRR then, N...
Q: Garage, Inc., has identified the following two mutually exclusive projects: Year Cash Flow (...
A: Note:We shall answer the first question since the exact one wasn’t specified. Please submit a new qu...
Q: Given the following information for Watson Power Co., Find the WACC. Assume the company’s tax rate i...
A: Calculation of WACC: