Reference no: EM131506516

Zenix Corporation has a machine that requires repairs or should be replaced. You have recently been hired by Zenix and one of your assignments is to help decide whether replacing the machine or repairing it is in the best interest of your company. Investment required for repairing the machine is only $2,500,000 and cost to replace the machine is $12,500,000. Repairing the machine will cut down on the number of returns from customers and increase cash flows, while replacing the machine may increase the number of units sold. Zenix has evaluated and calculated additional cash flows that will be generated under the two scenarios over the next five years as follows: Year Cash flow (if repaired) Cash Flow (if replaced) 1 955,000 6,513,000 2 900,000 4,855,000 3 878,000 3,878,100 4 751,000 2,969,800 5 487,000 1,751,000 Cost of capital for the project (repair or replacement) may vary anywhere from 10 to 14% for both scenarios. You should therefore conduct your analysis with at least five WACC points – 10%, 11%, 12%, 13% and 14%. Zenix does not like to accept projects that will pay back in more than 3 years. You must conduct the analysis using your knowledge of capital budgeting and time value of money to decide which of the options is better for ZENIX. All analysis must be done in Excel. Your excel model should be such that it can be used by ZENIX for other similar situations – so anyone can change any numbers and use the model again. This would require all calculations to be using cell references and excel functions. You must write a memo to your boss, explaining the situation, your analysis, and your conclusion. You must also explain the drawbacks of your technique/s if there are any. Formulas need to be used in the spread sheet do if you can put how to do the calaculations for wacc, npv, irr and ppi it would help