View the step-by-step solution to:


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?

Top Answer

Sign up to view the full answer

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.


Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
Ask a homework question - tutors are online