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15 Interstate Manufacturing is considering either replacing one of its old machines with a new machine or having the eld machine overhauled. Information about the

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15 Interstate Manufacturing is considering either replacing one of its old machines with a new machine or having the eld machine overhauled. Information about the two alternatives follows. Management requires a 10% rate of return on its Investments. (PV of $1. FV of $1. PVA of S1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Alternative 1: Keep the old machine and have it overhauled. If the old machine is overhouled, it will be kept for another tiver years and then sold for its salvage value. aints Skipped Cost of old machine Cost of overhaul Annual expected revenues generated Annual cash operating costs after overhaul Salvage value of old machine in 5 years $107.000 157,000 94,000 49,000 19,000 eBook Print sferenco Alternative 2: Sell the old machine and buy a new one. The new machine is more efficient and will yield substantial operating cost savings with more product being produced and sold Cost of new machine Salvage value of old machine now Annual expected revenues generated Annual cash operating costs Salvage value of new machine in 5 years $304,000 38,000 110,000 27,000 10,000 Kipped 1. Determine the net present value of alternative 1. Initial cash investment (net) Chart values are based on: i= Book Print Year Subsequent Cash Inflow (outflow) X Table factor Present Value erences 1 2 3 = 4 5 $ 0 2. Determine the net present value of alternative 2. 2. Determine the net present value of alternative 2. Initial cash investment (net) Subsequent Cash Year inflow (outflow) Table factor Present Value 11 1 2 III 3 4 11 5 Now + 0 Which alternative should management select

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