QUESTION 1
Continuing with the previous question: The Renecke Co. is planning to replace their printing equipment with a new computerized version that will print more copies at lower cost. The cost of the new machine will be $600,000 including installation. They can sell their fully depreciated existing machine for approximately $100,000. The new machine will require net working capital of $80,000 in period 0. What initial outlay will be required in period 0 for this new equipment? Assume a tax rate of 35%.
The new equipment is expected to increase sales by $350,000 but costs are also expected to increase by $100,000. At the end of the five-year project, they could sell the equipment for $50,000. Should they replace the printing equipment? Assume the cost of capital is 16%.
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Yes, NPV = $108,155,77
Yes, NPV =$92,682.09
$54,930.05
No, NPV = 28,500.22
QUESTION 2
The previous question has been slightly modified. Note the difference in the book value of the old machine.
The Renecke Co. is planning to replace their printing equipment with a new computerized version that will print more copies at lower cost. The cost of the new machine will be $600,000 including installation. The old machine has a book value of $150,000 that is being depreciated straight-line to a zero value over five years. It can be sold cu
ently for $100,000. The new machine will require net working capital of $80,000 in period 0. What initial outlay will be required in period 0 for this new equipment? Assume a tax rate of 35%.
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-$437,500
-$562,500
-$482,500
-$465000
QUESTION 3
This question follows the previous question: The Renecke Co. is planning to replace their printing equipment with a new computerized version that will print more copies at lower cost. The cost of the new machine will be $600,000 including installation. The old machine has a book value of $150,000 that is being depreciated straight-line t0 zero value over five years. It can be sold cu
ently for $100,000. The new machine will require net working capital of $80,000 in period 0.
The new equipment is expected to increase sales by $350,000 but costs are also expected to increase by $100,000. At the end of the five-year project, they could sell the equipment for $50,000. Should they replace the printing equipment? Assume the cost of capital is 16% and the tax rate is 35%.
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No, NPV = $120,765.32
No, NPV = -28,375.45
Yes, NPV = $160,655.77
Yes, NPV = $ 126,275.68