You are is considering replacing a five-year-old machine that originally cost $50,000. It was being depreciated...

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You are is considering replacing a five-year-old machine thatoriginally cost $50,000. It was being depreciated usingstraight-line to an expected salvage value of zero over itsoriginal 10-year life and could now be sold for $40,000. Thereplacement machine would cost $190,000 and have a five-yearexpected life. It would be depreciated using the MACRS 5-year classlife. The actual expected salvage value of this machine after fiveyears is $20,000. The new machine is expected to operate much moreefficiently, saving $6,000 per year in energy costs. In addition,it will eliminate one salaried position saving another $54,000annually. The firm’s marginal tax rate is 35% and the WACC is7.5%.
a. Set up an operating cash flow statement, andcalculate the payback, discounted payback, NPV, IRR, and MIRR ofthe replacement project. Should the project be accepted?
Use Excel for this Problem and display cell reference

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4.2 Ratings (865 Votes)

The final answers are mentioned here Detailed workings followafter the answersPayback period years292Discounted payback period years451NPV 51696IRR1956MIRR1386Yes theproject should be accepted as NPV is positive IRR and MIRR WACC and payback period is life of theprojectDetailed workingsI will first show the screenshot of my excel model in Showformulas mode so that you can see the formula in all the cellsJust after that I have produced the screenshot of the excel withanswers in the cell This will help you correlate the excel formulawith the outputCells highlighted in yellow contain the answersFormula ModeOutputModeV X Y AA AF 0 2 Year achine 94 Original cost 50000 95 Originallife 10 96 Annual depreciation w94W95 97 Accumulated depreciationso far W96 5 See Answer

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You are is considering replacing a five-year-old machine thatoriginally cost $50,000. It was being depreciated usingstraight-line to an expected salvage value of zero over itsoriginal 10-year life and could now be sold for $40,000. Thereplacement machine would cost $190,000 and have a five-yearexpected life. It would be depreciated using the MACRS 5-year classlife. The actual expected salvage value of this machine after fiveyears is $20,000. The new machine is expected to operate much moreefficiently, saving $6,000 per year in energy costs. In addition,it will eliminate one salaried position saving another $54,000annually. The firm’s marginal tax rate is 35% and the WACC is7.5%.a. Set up an operating cash flow statement, andcalculate the payback, discounted payback, NPV, IRR, and MIRR ofthe replacement project. Should the project be accepted?Use Excel for this Problem and display cell reference