A company is considering either buying a new machine or overhauling an old machine. Information about...
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A company is considering either buying a new machine or overhauling an old machine. Information about the alternative machines follows. The company requires a 12% rate of return on its investments. Note: Use appropriate factor(s) from the tables provided. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Alternative 1: Overhaul the old machine and keep it. This requires an initial investment of $162,000 and results in $45,600 of net cash flows in each of the next five years. After five years, this machine can be sold for a $21,600 salvage value. Alternative 2: Sell the old machine for $39,600 and buy a new one. This requires an initial investment of $320,000 and results in $52,000 of net cash flows in each of the next five years. After five years, this machine can be sold for a $12,000 salvage value. Enter answers in the tabs below. Required 1 Required 2 Required 3 Determine the net present value of alternative 2. Note: Negative net present values should be indicated with a minus sign. Do not round intermediate calculations. Round any present value factor to 4 decimals and final answers to the nearest whole dollar. Years 1-5 Salvage value-new machine Salvage value-old machine Totals Initial investment Net present value Net Cash Flows Present Value Factors at 12% Present Value of Net Cash Flows 0 < Required 1 Required 3 > A company is considering either buying a new machine or overhauling an old machine. Information about the alternative machines follows. The company requires a 12% rate of return on its investments. Note: Use appropriate factor(s) from the tables provided. (PV of $1, FV of $1, PVA of $1, and FVA of $1) Alternative 1: Overhaul the old machine and keep it. This requires an initial investment of $162,000 and results in $45,600 of net cash flows in each of the next five years. After five years, this machine can be sold for a $21,600 salvage value. Alternative 2: Sell the old machine for $39,600 and buy a new one. This requires an initial investment of $320,000 and results in $52,000 of net cash flows in each of the next five years. After five years, this machine can be sold for a $12,000 salvage value. Enter answers in the tabs below. Required 1 Required 2 Required 3 Determine the net present value of alternative 2. Note: Negative net present values should be indicated with a minus sign. Do not round intermediate calculations. Round any present value factor to 4 decimals and final answers to the nearest whole dollar. Years 1-5 Salvage value-new machine Salvage value-old machine Totals Initial investment Net present value Net Cash Flows Present Value Factors at 12% Present Value of Net Cash Flows 0 < Required 1 Required 3 >
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