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# I'm unsure how to arrive at net cash flow at the the outlay of this project: PC Shopping Network may upgrade its

modem pool. It last upgraded 2 years ago, when it spent \$90 million on equipment with an assumed life of 5 years and an assumed salvage value of \$17 million for tax purposes. The firm uses straight-line depreciation. The old equipment can be sold today for \$80 million. A new modem pool can be installed today for \$150 million. This will have a 3-year life and will be depreciated to zero using straight-line depreciation. The new equipment will enable the firm to increase sales by \$25 million per year and decrease operating costs by \$10 million per year. At the end of 0 years, the new equipment will be worthless. Assume the firm's tax rate is 35% and the discount rate for projects of this sort is 10%.

a. What is the net cash flow at time 0 if the old equipment is replaced?

Sale of old = 80 and this must be taxed so 80-(80*.35) = 52M ?

Salvage adds to cash flow = 17M

Cash flow at time 0 = 69M inflow?

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