Burton, a manufacturer of snowboards, is considering replacing an existing piece of equipment with a more...

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Burton, a manufacturer of snowboards, is considering replacingan existing piece of equipment with a more sophisticated machine.The following information is given. · The proposed machine willcost $120,000 and have installation costs of $20,000. It will bedepreciated using a 3 year MACRS recovery schedule. It can be soldfor $60,000 after three years of use (before tax; at the end ofyear 3).
The existing machine was purchased two years ago for $95,000(including installation). It is being depreciated using a 3 yearMACRS recovery schedule. It can be sold today for $20,000. It canbe used for three more years, but after three more years it willhave no market value.
The earnings before taxes and depreciation (EBITDA) are asfollows: o New machine: Year 1: 133,000, Year 2: 96,000, Year 3:127,000 o Existing machine: Year 1: 84,000, Year 2: 70,000, Year 3:74,000
Burton pays 40 percent taxes on ordinary income and capitalgains, and uses a WACC of 14%. · The maximum payback period allowedis 3 years.
They expect a large increase in sales so their Net WorkingCapital will increase by $20,000 when they buy the machine and itwill be recovered at the end of the project life.
a. Calculate the initial investment required for thisproject.
b. Determine the incremental after-tax operating cash flows
c. Find the terminal cash flow for the project
d. Find the Discounted Payback period, NPV, IRR, and MIRR.
e. Should the new machine be purchased? Why or why not?

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All financials below are in For the old machine it has completed two years ofdepreciationValue remaining after 2 years of depreciation 1 3333 4445 2222 2222 x 95000 21109Sale Price today 20000Hence post tax salvage value Salvage value Salvage value tax basis x tax rate 20000 20000 21109 x 402044360a Calculate the initial investment required for See Answer

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Burton, a manufacturer of snowboards, is considering replacingan existing piece of equipment with a more sophisticated machine.The following information is given. · The proposed machine willcost $120,000 and have installation costs of $20,000. It will bedepreciated using a 3 year MACRS recovery schedule. It can be soldfor $60,000 after three years of use (before tax; at the end ofyear 3).The existing machine was purchased two years ago for $95,000(including installation). It is being depreciated using a 3 yearMACRS recovery schedule. It can be sold today for $20,000. It canbe used for three more years, but after three more years it willhave no market value.The earnings before taxes and depreciation (EBITDA) are asfollows: o New machine: Year 1: 133,000, Year 2: 96,000, Year 3:127,000 o Existing machine: Year 1: 84,000, Year 2: 70,000, Year 3:74,000Burton pays 40 percent taxes on ordinary income and capitalgains, and uses a WACC of 14%. · The maximum payback period allowedis 3 years.They expect a large increase in sales so their Net WorkingCapital will increase by $20,000 when they buy the machine and itwill be recovered at the end of the project life.a. Calculate the initial investment required for thisproject.b. Determine the incremental after-tax operating cash flowsc. Find the terminal cash flow for the projectd. Find the Discounted Payback period, NPV, IRR, and MIRR.e. Should the new machine be purchased? Why or why not?