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equipment replacement income taxes continuation of 21 27 ass 268881

Equipment replacement, income taxes (continuation of 21 27). Assume the same facts as in Problem 21 27, except that the plant is located in Austin, Texas. Pro Chips has no special waiver on income taxes. It pays a 30% tax rate on all income. Proceeds from sales of equipment above book value are taxed at the same 30% rate.

1. Sketch the after tax cash in flows and outflows of the modernize and replace alternatives over the 2010 to 2016 period.

2. Calculate net present value of the modernize and replace alternatives.

3. Suppose Pro Chips is planning to build several more plants. It wants to have the most advantageous tax position possible. Pro Chips has been approached by Spain, Malaysia, and Australia to construct plants in their countries. Use the data in Problem 21 27 and this problem to briefly describe in qualitative terms the income tax features that would be advantageous to Pro Chips.

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