Please look at the attachment. It is all written in there.The question is whether to keep the existing machine or to replace it with the new one. This answer has to be supported by calculations of NPV and IRR. Based on the information provided in the attachment I need to answer the following questions:
1) Base -case analysis-should the replacement asset be purchased?Does it make economic sense? Support by calculations.
2)Issues related to the discount rate.How is the discount rate for capital budgeting purposes defined and calculated? Is this number appropriate for analyzing the asset replacement decision, why and why not? What impact, if any, would a rate below or above 10% have on recommended course of action. Prepare a schedule in excel showing NPV results after letting WACC vary from 8% to 13%. Please read the attachment for more details.
4) Calculate the book loss that will happen regarding the disposal of old machine What affect should the book value have on the decision to purchase the new machine?
5) Prepare a summary report in a form of a table that reflects the major issues addressed in the case.
Please read the attachment. Questions 1,2,4, and 5 are the ones that need to be answered.