Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
PC Shopping Network may upgrade its modem pool. It last upgraded 2 years ago, when it spent $115 million on equipment with a life of 5 years and a salvage value of $15 million. The old equipment can be sold today for $80 million. A technology consultant hired by PC Shopping Network has suggested that a new modem pool can be installed today for $150 million. This will have a 3-year life with a salvage value of $30 million. Both the new and old equipment are in an asset class with a CCA rate of 30%. PC Shopping Network has other assets in this asset class. The consultant's fee, payable this month, is $10,000.
The new equipment will enable the firm to increase sales by $25 million per year and decrease operating costs by $10 million per year. It will also require the firm to keep $5 million of extra inventory on hand. The additional inventory will not be needed after the useful life of the equipment. Assume the firm's tax rate is 35% and the discount rate for projects of this sort is 12%.
a. If the company decides to replace their existing modem pool with the new equipment, sales will increase and costs will decline. What is the impact of these changes for the firm's cash flow? In other words, find the present value of the incremental cash flows over the life of the project that result from the changes in sales and costs.
b. Replacing the old equipment with new equipment results in changes to the company's asset class and therefore changes to its depreciation tax shield. Find the PV of the depreciation tax shield associated with replacing the equipment.
c. Should the company replace the modem pool? Support your decision by finding the NPV of replacing the equipment.
Historically, three types of shapes have been observed for the yield curve. The relative change in the yield for each treasury maturity is known as a
What are the risks associated with using a large amount of short-term financing for working capital? Using a large amount of short-term financing in general allows funds to be
can you help me subtract checks and balances in financial algebra
discuss the applicability of an operating cycle considering broilers?
How would you incorporate political risk into the capital budgeting process of foreign investment projects? One method is to adjust the cost of capital upward to imitate politi
Contingency Planning: Once the events are evaluated and categorised, and the levels of risk attaching to them have established. The organisation should then commence pla
Stepped spread floaters have a provision to change the quoted margin at certain intervals over a floater's life. The quoted margin could either step to a higher l
Question: (a) Describe the main elements of Working capital management? (b) Belle Rive Ltd Belle Rive Ltd has an annual turnover of Rs 60 million of which 80% is on cr
Observed yield on strips can be used to construct an actual spot rate curve, but it is not free from drawbacks. There are some problems with this; first, the liqu
how do we measure equity in an orgarnisation
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd