Discuss the impacts of Developing Relevant Cash Flows for Part-Time Students.

Developing Relevant Cash Flows for Part-Time Student Company’s Machine Renewal or Replacement Decision Mclovin, chief financial officer of Part-Time Student Company (PTSC), expects the firm’s net profits after taxes for the next 5years to be as shown in the following table.Year Net profits after taxes1 $100,0002 $150,0003 $200,0004 $250,0005 $320,000Mclovin is beginning to develop the relevant cash flows needed to analyze whether to renew or replace PTSC’s onlydepreciable asset, a machine that originally cost $30,000, has a current book value of zero, and can now be sold for $20,000. (Note:Because the firm’s only depreciable asset is fully depreciated—its book value is zero—its expected net profits after taxes equal itsoperating cash inflows.) He estimates that at the end of 5 years. Mclovin plans to use the following information to develop therelevant cash flows for each of the alternatives.Alternative 1 Renew the existing machine at a total depreciable cost of $90,000. The renewed machine would have a 5-yearusable life and depreciated under MACRS using a 5-year recovery period. Renewing the machine would result in the followingprojected revenues and expenses (excluding depreciation):Year Revenue Expenses(excluding depreciation)1 $1,000,000 $801,5002 1,175,000 884,2003 1,300,000 918,1004 1,425,000 943,1005 1,550,000 968,100The renewed machine would result in an increased investment of $15,000 in net working capital. At the end of 5 years, the machinecould be sold to net $8,000 before taxes.Alternative 2 Replace the existing machine with a new machine costing $100,000 and requiring installation costs of $10,000.The new machine would have a 5-year usable life and be depreciated under MACRS using a 5-year recovery period. The firm’sprojected revenues and expenses (excluding depreciation), if it acquires the machine, would be as follows:Year Revenue Expenses(excluding depreciation)1 $1,000,000 $764,5002 1,175,000 839,8003 1,300,000 914,9004 1,425,000 989,9005 1,550,000 998,900 The new machine would result in an increased investment of $22,000 in net working capital. At the end of 5 years, the new machinecould be sold to net $25,000 before taxes. The weighted average cost of capital will be given to your group when you email me orprovide the names of your group to me in class; the marginal tax rate is 40%.Find the NPV, IRR, MIRR, payback and discounted payback for both alternatives. Which alternative should be selected? Explain.