Question

Question 1:

Dublin Chips is a manufacturer of prototype chips based in Dublin, Ireland. Next year, in 2018, Dublin Chips expects to deliver 615 prototype chips at an average price of $95,000. Dublin Chips' marketing vice president forecasts growth of 65 prototype chips per year through 2024. That is, demand will be 615 in 2018, 680 in 2019, 745 in 2020, and so on. (Click the icon to view additional information.) (Click the icon to view the data on the two options available and additional information.) Present Value of $1 table Present Value of Annuity of $1 table Future Value of $1 table Future Value of Annuity of $1 table Read the requirements.

Question 2:

Answer 1

dear student,

As per the Chegg policy, only the first question should be answered. Kindly take note of it. Every new question should be posted separately.

Part 1

Cash flows for modernizing alternative:
Year (1)	Units sold (2)	Net cash contributions (3) = (2)*$16500	Initial investments	Sale of Equip. at Termination
Jan. 1, 2018			(35300000)
Dec. 31, 2018	615	10147500
Dec. 31, 2019	680	11220000
Dec. 31, 2020	745	12292500
Dec. 31, 2021	810	13365000
Dec. 31, 2022	875	14437500
Dec. 31, 2023	940	15510000
Dec. 31, 2024	1005	16582500		7500000

Cash contribution per prototype = 95000-78500 = $16500

Cash flows for replacement alternative:
Year (1)	Units sold (2)	Net cash contributions (3) = (2)*$29000	Initial investments	Sale of Equip. at Termination
Jan. 1, 2018			(66300000)	4200000
Dec. 31, 2018	615	17835000
Dec. 31, 2019	680	19720000
Dec. 31, 2020	745	21605000
Dec. 31, 2021	810	23490000
Dec. 31, 2022	875	25375000
Dec. 31, 2023	940	27260000
Dec. 31, 2024	1005	29145000		16000000

Cash contribution per prototype = 95000-66000 = $29000

Part 2

Payback period calculations for modernizing alternative:

Year (1)	Cash Inflow (2)	Cumulative cash Inflow (3)	Net Initial Investment Unrecovered at End of Year (4)
Jan. 1, 2018			35300000
Dec. 31, 2018	10147500	10147500	25152500
Dec. 31, 2019	11220000	21367500	13932500
Dec. 31, 2020	12292500	33660000	1640000
Dec. 31, 2021	13365000	47025000	0

Payback = 3 + (1640000 / 13365000) = 3.12 years

Payback period calculations for replace alternative:

Year (1)	Cash Inflow (2)	Cumulative cash Inflow (3)	Net Initial Investment Unrecovered at End of Year (4)
Jan. 1, 2018			62100000
Dec. 31, 2018	17835000	17835000	44265000
Dec. 31, 2019	19720000	37555000	24545000
Dec. 31, 2020	21605000	59160000	2940000
Dec. 31, 2021	23490000	82650000	0

Payback = 3 + (2940000 / 23490000) = 3.13 years

NPV of Modernizing alternative:

Year	Present Value Discount Factors At 14%	Net Cash Flow	Present Value
Jan. 1, 2018	1.000	(35300000)	(35300000)
Dec. 31, 2018	0.877	10147500	8899358
Dec. 31, 2019	0.769	11220000	8628180
Dec. 31, 2020	0.675	12292500	8297438
Dec. 31, 2021	0.592	13365000	7912080
Dec. 31, 2022	0.519	14437500	7493063
Dec. 31, 2023	0.456	15510000	7072560
Dec. 31, 2024	0.400	16582500	9633000
Total			$22635679

NPV of Replace Alternative:

Year	Present Value Discount Factors At 14%	Net Cash Flow	Present Value
Jan. 1, 2018	1.000	(62100000)	(35300000)
Dec. 31, 2018	0.877	17835000	15641295
Dec. 31, 2019	0.769	19720000	15164680
Dec. 31, 2020	0.675	21605000	14583375
Dec. 31, 2021	0.592	23490000	13906080
Dec. 31, 2022	0.519	25375000	13169625
Dec. 31, 2023	0.456	27260000	12430560
Dec. 31, 2024	0.400	29145000	18058000
Total			$40853615

Part 4

Nonfinancial qualitative factors such as quality of the prototypes produced, capacity and ability to meet surges in demand and labor force externalities should be considered for choosing between the alternatives as according to payback period, modernizing alternative is better while according to NPV, replace alternative is better.