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 of the two alternatives are shown below.

If the 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 efficient, resulting in a substantial reduction in annual operating costs, as shown below:

Current

Water

Softener New

Water Softener

Purchase cost new $ $25,000$ $ $35,500$

Remaining book value $ $21,500$

Overhaul needed now $ $12,500$

Annual cash operating costs $ $14,500$ $ $9,600$

Salvage value now $ $5,400$

Salvage value eight years from now $ $2,700$ $ $6,400$

Clean Duds computes depreciation on a straight$-$line basis. All equipment purchases are evaluated using a $14\%$ discount rate.

Required:

$($Ignore income taxes.$)$

$1-$a$.$ Determine the present value of net cash flows using the total$-$cost approach. $($Hint: Use Microsoft Excel to calculate the discount factor$($s$).)($Enter any cash outflows with a minus sign. Do not round intermediate calculations and round final answers to the nearest dollar amount.$)$

$1-$b$.$ Should Clean Duds Laundromat upgrade the old water softener or purchase the new one?

multiple choice

Purchase the new softener

Upgrade the old softener

$2.$ Using the incremental$-$cost approach, determine the net present value in favor of $($or against$)$ purchasing the new 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.$)$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 of the two alternatives are shown

below.

If the 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

efficient, resulting in a substantial reduction in annual operating costs, as shown below:

Clean Duds computes depreciation on a straight$-$line basis. All equipment purchases are evaluated using a $14\%$ discount rate.

Required:

$($Ignore income taxes.$)$

$1-$a$.$ Determine the present value of net cash flows using the total$-$cost approach. $($Hint$.$ Use Microsoft Excel to calculate the discount

factor$($s$).)($Enter any cash outflows with a minus sign. Do not round intermediate calculations and round final answers to the

nearest dollar amount.$)$

$1-$b$.$ Should Clean Duds Laundromat upgrade the old water softener or purchase the new one?

Purchase the new softener

Upgrade the old softener

Using the incremental$-$cost approach, determine the net present value in favor of $($or against$)$ purchasing the new 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.$)$