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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

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:

Old System New System
Purchase cost (new) $85,000 $90,000
Remaining book value 17,000
Overhaul needed 25,000
Annual cash operating costs 60,850 40,200
Current salvage value 12,000
Salvage value in 5 years 4,500 10,000

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: $Answer Net present value of purchasing and operating new system: $Answer Net savings of Answerkeeping old systempurchasing new system $Answer 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.

Present Value
Predicted of
Cash Inflows (Outflows) Cash Flows
Initial investment, net: Answer Answer
Operations Answer Answer
Overhaul of old Answer Answer
Disinvestment Answer Answer
Net present value of costs Answer

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