Chapter 24- Homeworki 4 Interstate Manufacturing is considering either replacing one of its old machines with a new machine or having the old machine overhauled. Information about the two alternatives follows. Management requires a 12% rate of return on its investments. Use the (PV of $1, FV of $1, PVA of $1, and FVA of $1 (Use appropriate factor(s) from the tables provided.) 20 Alternative 1: Keep the old machine and have it overhauled. tf the old machine is overhauled. it will be kept for another five years and then sold for its salvage value. Cost of old machine Cost of overhaul Annual expected revenues generated 91,000 Annual cash operating costs after overhaul Salvage value of old machine in 5 years $119,000 152,000 49,000 Print 18,000 References 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 Annual expected revenues generated Annual cash operating costs Salvage value of new machine in 5 years $298,000 31,000 103,000 31,000 10,000 Determine the net present value of alternative 1. Initial cash investment (net) hart values are based on: Subsequent Cash inflow outflow Present Value Year Table factor = resent value of alternativ Initial cash investment (net) Subsequent Cash inflow outflow Present Value Year Table factor = Now Which alternative should management select