What is the npv of the replacement project

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PC Shopping Network may upgrade its modem pool. It last upgraded 2 years ago, when it spent $135 million on equipment with an assumed life of 5 years and an assumed salvage value of $30 million for tax purposes. The firm uses straight-line depreciation. The old equipment can be sold today for $100 million. A new modem pool can be installed today for $180 million. This will have a 3-year life and will be depreciated to zero using straight-line depreciation. The new equipment will enable the firm to increase sales by $23 million per year and decrease operating costs by $11 million per year. At the end of 3 years, the new equipment will be worthless. Assume the firm's tax rate is 30% and the discount rate for projects of this sort is 11%.

Required:

What is the net cash flow at time 0 if the old equipment is replaced?

Note: Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.

What are the incremental cash flows in years: (i) 1; (ii) 2; (iii) 3?

Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.

What is the NPV of the replacement project?

Note: Do not round intermediate calculations. Enter the NPV in millions rounded to 2 decimal places.

What is the IRR of the replacement project?

Reference no: EM133632588

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