$4$

Interstate Manufacturing is considering either overhauling an old machine or replacing it with a new machine Information about the two alternatives follow. Management requires a $12\%$ rate of return on its investments. $($PV of $$1,FV$ of $$1,$ PVA of $$1,$ and FVA of $$1)$ Note: Use appropriate factor$($s$)$ from the tables provided.

$25$

points

Alternative $1$: Keep the old machine and have it overhauled. This requires an initial investment of $$152,000$ and results in $$40,000$ of net cash flows in each of the next five years. After five years, it can be sold for a $$24,000$ salvage value.

Alternative $2$: Sell the old machine for $$45,000$ and buy a new one. The new machine requires an initial investment of $$309,000$ and can be sold a $$6,000$ salvage value in five years. It would yield cost savings and higher sales, resulting in net cash flows of $$59,000$ in of the next five years.

Required:

Determine the net present value of alternative $1.$

Determine the net present value of alternative $2.$

Which alternative should management select based on net present value?

Complete this question by entering your answers in the tabs below.

Required $1$

Required $2$

Required $3$

Determine the net present value of alternative $1.$

Note: Do not round intermediate calculations. Round your present value factor to $4$ decimals and final answers to the nearest whole dollar.

$\backslash$table$[[,\backslash$table$[[$Net Cash$],[$Flows$]],\backslash$table$[[$Present Value$],[$Factors at $12\%]],\backslash$table$[[$Present Value of$],[$Cash Flows$]]],[$Year $1-5,,,],[$Salvage value $($year $5),,,],[$Totals$,,,],[$Initial investment,,,$],[$Net present value,,,$]]$

SRerdiritit