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P11-28 (similar to Question Help * Integrative Complete investment decision Wells Printing is considering the purchase of a new printing press. The total installed cost of the press is $2.22 million This outlay would be partially offset by the sale of an existing press. The old press has zero book value, cost $1.02 million 10 years ago, and can be sold currently for $1.25 million before taxes. As a result of acquisition of the new press, sales in each of the next 5 years are expected to be $1.65 mil on higher than with the existing press, but product costs excluding depreciation will represent 45% o sales. The new p ess will not a ect the firms net working capital requrements. The new press wil be depreciated under MACRS using a 5-year recovery penod. The firm is sub ect to a 40% tax rate. Wells Printings cost o capitais 10.9% e Assume that the old and the new presses will each have a terminal value of $0 at the end of year 6.) a. Detemine the initial investment required by the new press b. Deteine the operating cash inflows attributable to the new press. (Note: Be sure to consider the depreciation in year 6.) c. Detemine the payback period d. Determine the net present value (NPV) and the internal rate of return (IRR) related to the proposed new press e. Make a recommendation to accept or reject the new press, and justify your answer Calculate the initial investment will be: (Round to the nearest dollar.) Installed cost of new press Proceeds from sale of existing press Taxes on sale of existing press Total after-tax proceeds from sale Initial investment Enter any number in the edit fields and then click Check Answer 10 remaining . Clear Al Check AnswerData Table cdClick on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by 10 years 14% 25% 10% 14% 9% 35% 20% 15% 5% 10 6% Print Done

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AS ASKED BY YOU, I HAVE PROVIDED CALCULATION FOR INITIAL INVESTMENT

Home nert Page Layout Formulas Data Review View dd-Ins Cut Σ AutoSum ー E ゴWrap Text ta copy ▼ в 1 프 . Ej-., Δ. : rーー 逻锂函Merge & Center. $, % , 弼,8 Conditional Format eCell Insert Delete Format Sort &Find & 2 ClearFe Select Edting Format Painter Formatting, as Table w styles. ▼ ㆆ ▼ Clipboard Alignment Number Cells YN YO YP YR YS YU YV YX YZ 49 NOTE S 12,50,000 A 51 52 53 54 SALE PRICE BOOK VALUE PROFIT ON SALE TAX ON PROFIT AFTER TAX SALE SALVAGE VALUE S 12,50,000 C $ 5,00,000 D S 7,50,000 A-D 56 57 58 59 60 61 62 63 64 65 INITIAL INVESTMENT INITIAL COST OF NEW PRESS PROCEEDS FROM SALE OF EXISTING PRESS $ TAX ON SALE OF EXISTING PRESS TOTALAFTER TAX PROCEEDS FROM SALE $ 22,20,000 12,50,000 $ 5,00,000 7,50,000 INITIAL INVESTMENT S 14,70,000 67 , トト MIRR NPV İRR REPLACEMENT S HPR GMAM EAC MACRS LEASE- RATIOCASHBUDGET / wacc . BOND EPS EBIT , REPLACEMENT (STats | NPV . BETA LEVERED 9う (4 - - rences: ED12 福 130% 07-01-2019

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