PLease solve using paper so I can see the detialed answer! Thanks in advance! WA

Question

PLease solve using paper so I can see the detialed answer! Thanks in advance!

WACC is 7.45

PRC is also considering replacing the production line for its existing product. The firm estimates that new machinery will cost S15.5 mln, last for 20 years, and lower cash outflows associated with production by $2.25 mln annually. Should PRC replace its production line? [5 points] Assume that the annual cost savings will increase by 3.5% every year that PRC delays replacing its production machinery. Determine when the optional time for the firm to replace the machinery is. Feel free to use Excel for this part of the question, but it is not a. b. points]

Explanation / Answer

Part B

Company may avail to optionally replace machine after 9th year when net NPV becomes positive. Each cash inflow is increased by 3.5% in every year.

PArt A

Cash Ouflow/ Inflow (in Millions) Year Present Value Factor PV Amount -15.5 0 -15.5 $(15.50) 2.25 1 0.930665426 $2.09 2.32875 2 0.866138135 $2.02 2.41025625 3 0.806084816 $1.94 2.494615219 4 0.750195268 $1.87 2.581926751 5 0.698180799 $1.80 2.672294188 6 0.649772731 $1.74 2.765824484 7 0.604721015 $1.67 2.862628341 8 0.562792941 $1.61 2.962820333 9 0.523771932 $1.55 16.3 2.25 10 0.487456428 $1.10 2.25 11 0.453658844 $1.02 2.25 12 0.422204601 $0.95 2.25 13 0.392931225 $0.88 2.25 14 0.365687506 $0.82 2.25 15 0.340332718 $0.77 2.25 16 0.316735894 $0.71 2.25 17 0.294775146 $0.66 2.25 18 0.274337037 $0.62 2.25 19 0.255315995 $0.57 2.25 20 0.237613769 $0.53 Total $9.44

PArt A

Answer A Cash Ouflow/ Inflow (in Millions) Year Present Value Factor PV Amount -15.5 0 -15.5 $(15.50) 2.25 1 0.930665426 $2.09 2.25 2 0.866138135 $1.95 2.25 3 0.806084816 $1.81 2.25 4 0.750195268 $1.69 2.25 5 0.698180799 $1.57 2.25 6 0.649772731 $1.46 2.25 7 0.604721015 $1.36 2.25 8 0.562792941 $1.27 2.25 9 0.523771932 $1.18 2.25 10 0.487456428 $1.10 2.25 11 0.453658844 $1.02 2.25 12 0.422204601 $0.95 2.25 13 0.392931225 $0.88 2.25 14 0.365687506 $0.82 2.25 15 0.340332718 $0.77 2.25 16 0.316735894 $0.71 2.25 17 0.294775146 $0.66 2.25 18 0.274337037 $0.62 2.25 19 0.255315995 $0.57 2.25 20 0.237613769 $0.53 Total $7.53 Since the net NPV is positive, PRC may replace the production line

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