Question

please conplete all parts to the question. i added some photos of answer choices to go by but not all of them

4. Analysis of a replacement project At times firms will need to decide if they want to continue to use their current equipment or replace the equipment with newer equipment. The company will need to do replacement analysis to determine which option is the best financial decision for the company. LORUSSO Co. is considering replacing an existing piece of equipment. The project involves the following: • The new equipment will have a cost of $1,200,000, and it is eligible for 100% bonus depreciation so it will be fully depreciated at to. • The old machine was purchased before the new tax law, so it is being depreciated on a straight-line basis. It has a book value of $200,000 (at year 0) and four more years of depreciation left ($50,000 per year). • The new equipment will have a salvage value of $0 at the end of the project's life (year 6). The old machine has a current salvage value (at year 0) of $300,000 • Replacing the old machine will require an investment in net operating working capital (NOWC) of $45,000 that will be recovered at the end of the project's life (year 6). . The new machine is more efficient, so the firm's incremental earnings before interest and taxes (EBIT) will increase by a total of $600,000 in each of the next six years (years 1-6). Hint: This value represents the difference between the revenues and operating costs (including depreciation expense) generated using the new equipment and that earned using the old equipment • The project's cost of capital is 13%. • The company's annual tax rate is 25%.

Answer 1

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- 2x AM projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins % Cut Σ AutoSum : A Calibri 11 AA = = = pt Wrap Text General Ea Copy Fill Paste BI U D- DA Merge & Center - $ % , Format Painter :.: Sort & Find & Formatting as Table Styles 2 Clear Filter Select Clipboard Font Alignment Number Styles Cells Editing AB106 fx AA AB AC AD AE AF AG AH AI AJ AK AL 106 0 1 2 B 3 4 5 6 107 INITIAL INVESTMENT [SEE NOTE] -900000 108 EBIT 600000 600000 600000 600000 600000 600000 109 LESS TAXES 25% -150000 -150000 -150000 -150000 150000 - 150000 110 111 LESS A DEPRECIATION * TAX RATE -12500 -12500 -12500 -12500 0 0 112 ADD SALVAGE VALUE 300000 113 LESS TAX ON SALVAGE -25000 114 LESS NWC -45000 115 ADD RECAPTURE OF NWC 45000 116 A TOTAL FREE CASH FLOW -670000 437500437500437500437500 450000 495000 117 B PV FACTOR @13% 1 0.8850 0.7831 0.6931 0.6133 0.5428 0.4803 118 A*B PV OF CFAT -670000 387168.14 342626.67 303209.45 268326.94 244241.97 237757.67 1113331 119 NPV 120 NPV = 1113331 121 122 NOTE AS IT IS A CASE OF 100% BONUS DEPRECIATION 123 INITIAL INVESTMENT = AFTER TAX COST OF MACHINE = 1200000*(1-0.25) = 900000 124 NOTE PROFIT ON SALE OF OLD MACHINE = 300000 - 200000 = 100000, SO TAX ON 100000 = 25% OF 100000 = 25000 N MI-np-ir REPLACEMENTS HPR GMAM EAC MACRS NPV RELEVANT BETA LEVERED REPLACEMENT BOND OPTION TO WAITSTEIN indiffEPS EBIT LEASE STRAIGHT LINE GO T Rea ferences BO 130% - ODER 9 * * TO ENG H O 0 20-11-2019