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Clean Duds Laundromat has an industrial water softener that enhances the water quality used in its washing machines. The water softener is approaching the end
Clean Duds Laundromat has an industrial water softener that enhances the water quality used in its washing machines. The water softener is approaching the end of its useful life and must be either overhauled or replaced. Details ofthe two alternatives are shown below. lfthe company overhauls its current water softener. then it will be usable for eight more years. If, instead, a new water softener is purchased, it will be used for eight years, after which it will be replaced. The new water softener will be considerably more energy efcient, resulting in a substantial reduction in annual operating costs, as shown below: Current New Water Water Softener Softener Purchase cost new $26,886- 53?,886 Remaining book value 522, 586- Overhaul needed now $13,886- Annual cash operating costs $15,886- 5 9,988 Salvage value now 5 5,686- Salvage value eight years from now 5 2,386- 5 6,688 Clean Duds computes depreciation on a straightline basis. All equipment purchases are evaluated using a 15% discount rate. Required: [Ignore income taxes.) 1-a. Determine the present value of net cash flows using the totalcost approach. [Hint Use Microsoft Excel to calculate the discount factor[s}.) (Enter any cash outows with a minus sign. Do not round intermediate calculations and round nal answers to the nearest dollar amount} Purchase the new softener Upgrade and Keep the old soener on-..\" . \"c...\"- LVIIIHMLLsl we]... emu\"... . u. . u ullult'l n u. .L uuulu. . u. guru]... no... ,4\".-. \"4.1;... u. u -_ \"mun..-\" u...\" .5 u .... \"4 \"When.\" u. . \"LL. Required: [Ignore income taxes} 1-a. Determine the present value of net cash flows using the totalcost approach. (Hint Use Microsoft Excel to calculate the discount factor[s}_) (Enter any}I cash outows with a minus sign. Do not round intermediate calculations and round nal answers to the nearest dollar amount.} Purchase the new soften er Upgrade and Keep the old soener 1-b. Should Clean Duds Laundromat upgrade the old water softener or purchase the new one? (9 Purchase the new softener 0 Upgrade the old softener 7. Using the incrementalcost approach, determine the net present value in favor of [or against} purchasing the newr water softener? [Hint Use Microsoft Excel to calculate the discount factor{s)_) {Do not round intermediate calculations and round final answer to the nearest dollar amount.} $ 5,?27
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