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out References Mailings Review View O Search Project 2: Micah's Replacement Decision Project description Micah Corporation is trying to determine the initial investment required to replace an old machine with a new one. The new machine costs $380,000, and an additional $20,000 will be necessary to install it. It will be depreciated under MACRS, using a 5-year recovery period. The 5-year MACRS depreciation rates are: 1 Year Depreciation 2 32% 20% 3 19% 4 12% 5 12% 6 5% The old machine was purchased 3 years ago at a cost of $240,000 and was bei preciated under MACRS, using a 5-year recovery period. The firm can sell the old machine for $280,000. The firm expects that a $35,000 increase in current assets and an $18,000 increase in current liabilities will accompany the replacement. The firm's tax rate is 21%. The new machine and the old machine are associated with the following EBITDA (earnings before interest, taxes, depreciation and amortization) over the 5-year life of the project: Year 1 3 5 New machine's EBITDA 220,000 220.000 220,000 220,000 220.000 Old machine's EBITDA 210,000 190,000 170.000 150,000 130,000 4 Assume that the firm expects to liquidate the new machine at the end of its S-year usable life, to net $50,000 after paying remo al and cleanup costs. Had the new machine not replaced the old machine, the old machine would have been liquidated after 5 years to net $10,000. The firm expects to recover its net working capital investment upon termination of the project. If the corporation's capital structure is 50% debt and 50% equity, and the corporation will continue this capital structure to fund the investment on the new machine. Its cost of debt is 5% and cost of equity is 12%. Should Micah do the replacement Support your conclusion with NPV and IRR values. Requirements 1. Present the case solution in an Excel with clear labels, functions and descriptions 2. Starting with the data provided, show each step of your work that leads to the conclusion 3. Due in D2L by 11:59PM Sunday June 1. Hints 1. You may need the following equations: FCF-FRITX(1.1)+DP-net CAPX-ANWC O DELL Project 2 replacment (1) - Saved to this PC Layo oferences View Mailings Review Help Search 2. Starting with the data provided, show cach step of your work that leads to the conclusion 3. Due in D2L by 11:59PM Sunday June 1 Hints 1. You may need the following equations: FCF-EBIT (1-1)-DP-net CAPX-ANWC WACC-dd-(1-1) After-tax salvage valueMV-MV-BV) Excel function of NPV. Excel function of IRR 2.11.replacement decision and you need to consider the effect of the new machine relatives of the old one Grading 7 points in total Finished and submitted on time: 3 points 0-25% correct: +1 25%-50% correct 2 50-75% correct: + 3 75%-100% corect: o HI DELL

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