Answer part b and show working please
Assume Pinstripes Cleaning and Restoration, near Dallas, Texas, must either have a complete overhaul of its current dry-cleaning system or purchase a new one. Its cost of capital is 16%. The following cost projections have been developed: Purchase cost (new) Remaining book value Overhaul needed Annual cash operating costs Current salvage value Salvage value in 5 years Old System New System $170,000 $180,000 34.000 50.000 121,700 80,400 24,000 9.000 20,000 If Pinstripes keeps the old system, it will have to be overhauled immediately. With the overhaul, the old system will have a useful life of five more years. Required a. Use the total cost approach to evaluate the alternatives of keeping the old system and purchasing the new system. Indicate which alternative is preferred. Hint: Use a negative sign to indicate a negative net present value. Net present value of operating old system: $ (444,196) Net present value of purchasing and operating new system: S (409,731) Net savings of purchasing new system $ 34,465 b. Use the differential cost approach to evaluate the desirability of purchasing the new system. Note: There may be slight differences between your answers in part a and part b due to rounding. Note: Round each of your answers below to the nearest whole dollar. Initial investment, net: Operations Overhaul of old Disinvestment Net recent value of coste Present Value Predicted of Cash Inflows (Outflows) Cash Flows $ 0 X 5 Ox OX 50,000 50,000 OX Ox S 0 X Ponadto complete The Pare seen eve G D Bm STO 18.00 000 w Woverthe old wayan . D Assume Pinstripes Cleaning and Restoration, near Dallas, Texas, must either have a complete overhaul of its current dry-cleaning system or purchase a new one. Its cost of capital is 16%. The following cost projections have been developed: Purchase cost (new) Remaining book value Overhaul needed Annual cash operating costs Current salvage value Salvage value in 5 years Old System New System $170,000 $180,000 34.000 50.000 121,700 80,400 24,000 9.000 20,000 If Pinstripes keeps the old system, it will have to be overhauled immediately. With the overhaul, the old system will have a useful life of five more years. Required a. Use the total cost approach to evaluate the alternatives of keeping the old system and purchasing the new system. Indicate which alternative is preferred. Hint: Use a negative sign to indicate a negative net present value. Net present value of operating old system: $ (444,196) Net present value of purchasing and operating new system: S (409,731) Net savings of purchasing new system $ 34,465 b. Use the differential cost approach to evaluate the desirability of purchasing the new system. Note: There may be slight differences between your answers in part a and part b due to rounding. Note: Round each of your answers below to the nearest whole dollar. Initial investment, net: Operations Overhaul of old Disinvestment Net recent value of coste Present Value Predicted of Cash Inflows (Outflows) Cash Flows $ 0 X 5 Ox OX 50,000 50,000 OX Ox S 0 X Ponadto complete The Pare seen eve G D Bm STO 18.00 000 w Woverthe old wayan . D
