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case study 2 Developing Relevant Cash Flows for Part-Time Student Company's Machine Renewal or Replacement Decision Mclovin, chief financial officer of Part-Time Student Company PTSC) expects the firm's profile flere years to be as shown in the following table. for the next Net profits where SI SL.000 $200.000 5290.000 $120.000 Mclovin is beginning to develop the relevant cash flows needed to walyze whether to renew or replace PTSC's only depreciable asset, a machine that originally cost $30,000, has a current book value of nero, and can now be sold for $20,000. (Note: Because the firm's only depreciable asset is fully depreciated..is book value is zero-is expected net profits after takes equalis operating cash inflows.) He estimates that the end of 5 years. Mclovin plans to use the following information to develop the relevant cash flows for each of the alteratives Alternative Renew the existing machine at a total depreciable cost of $90,000. The renewed machine would have a 5 yea usable life and depreciated under MACRS using a 5-year recovery period. Renewing the machine would result in the following projected revenues and expenses (excluding depreciation: alternative Year Revenge Expenses (excluding depreciation) 1 = 26.300 $1,000,000 5801.500 1.175.000 884,200 1,300,000 918,100 1.425,000 943,100 1,550,000 968, 100 The renewed machine would result in an increased investment of S15,000 in networking capital. At the end of 5 years, the machine could be sold to net $8,000 before taxes. Alternative Replace the existing machine with a new machine costing S100.000 and requiring installation costs of 10,000 The new machine would have a 5-year usable life and be depreciated under MACRS using a 5-year recovery period. The firm's projected revenues and expenses (excluding depreciation), if it acquires the machine, would be as follows: Year Revenue $1,000,000 1.175.000 1.300.000 1.425,000 1,550,000 Expenses(excluding depreciation) $764,500 839,800 914,900 989,900 998,900 The new machine would result in an increased investment of $22.000 in net working capital. At the end of 5 years, the new machine could be sold to net $25,000 before taxes. The weighted average cost of capital is 10% and the marginal tax rate is 40% Find the NPV, IRR, MIRR, payback and discounted payback for both alternatives. Which alternative should be selected? Explain. case study 2 Developing Relevant Cash Flows for Part-Time Student Company's Machine Renewal or Replacement Decision Mclovin, chief financial officer of Part-Time Student Company PTSC) expects the firm's profile flere years to be as shown in the following table. for the next Net profits where SI SL.000 $200.000 5290.000 $120.000 Mclovin is beginning to develop the relevant cash flows needed to walyze whether to renew or replace PTSC's only depreciable asset, a machine that originally cost $30,000, has a current book value of nero, and can now be sold for $20,000. (Note: Because the firm's only depreciable asset is fully depreciated..is book value is zero-is expected net profits after takes equalis operating cash inflows.) He estimates that the end of 5 years. Mclovin plans to use the following information to develop the relevant cash flows for each of the alteratives Alternative Renew the existing machine at a total depreciable cost of $90,000. The renewed machine would have a 5 yea usable life and depreciated under MACRS using a 5-year recovery period. Renewing the machine would result in the following projected revenues and expenses (excluding depreciation: alternative Year Revenge Expenses (excluding depreciation) 1 = 26.300 $1,000,000 5801.500 1.175.000 884,200 1,300,000 918,100 1.425,000 943,100 1,550,000 968, 100 The renewed machine would result in an increased investment of S15,000 in networking capital. At the end of 5 years, the machine could be sold to net $8,000 before taxes. Alternative Replace the existing machine with a new machine costing S100.000 and requiring installation costs of 10,000 The new machine would have a 5-year usable life and be depreciated under MACRS using a 5-year recovery period. The firm's projected revenues and expenses (excluding depreciation), if it acquires the machine, would be as follows: Year Revenue $1,000,000 1.175.000 1.300.000 1.425,000 1,550,000 Expenses(excluding depreciation) $764,500 839,800 914,900 989,900 998,900 The new machine would result in an increased investment of $22.000 in net working capital. At the end of 5 years, the new machine could be sold to net $25,000 before taxes. The weighted average cost of capital is 10% and the marginal tax rate is 40% Find the NPV, IRR, MIRR, payback and discounted payback for both alternatives. Which alternative should be selected? Explain

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