backhoes

discount rate 8%

old backhoes new backhoes

purchase cost when new 90,000 200,000

salvage value now 42,000

investment in major overhaul

in next year 55,000

salvage value in 8 years 15,000 90,000

remaining life 8 years 8 years

net cash flow generated each year 30,425 43,900

calculate the net present value for old backhoes and new backhoes

calculate the payback period for keeping the old backhoes and purchasing new backhoes

calculate the profitability index for keeping the old backhoes and purchasing new backhoes