Star Wars & Company is considering the replacement of itsold, fully depreciated blasters. Two new models are available: Type168-3, which has a cost of $265,000, a 4-year expected life, andafter-tax cash flows (labor savings and depreciation) of $96,500per year; and Type 190-6, which has a cost of 465,000, a 8-yearlife, and after-tax cash flows of $101,800 per year. Blaster pricesare not expected to rise, because inflation will be offset bycheaper components (microprocessors) used in the modernblasters.
- Assume that Star Wars' cost of capital is 12%. Calculate thetwo Blaster Types' NPVs. Round your answers to the nearest cent.(Hint: Adjust the NPV for the Blaster Type with the shorterlength)
- Should the firm replace its old Blaster, and, if so, which newBlaster Type should it use?
- By how much would the value of the company increase if itaccepted the better Blaster Type? Round your answer to the nearestcent. (hint:pick the higher valued Blaster from Part a).
- What is the equivalent annual annuity for each Blaster Type?Round your answer to the nearest cent.
