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Current Attempt in Progress Waterways puts much emphasis on cash flow when it plans for capitat investments. The company chose its discount rate of 996
Current Attempt in Progress Waterways puts much emphasis on cash flow when it plans for capitat investments. The company chose its discount rate of 996 based on the rate of return it must pay its owners and creditors. Using that rate, Waterways then uses different methods to determine the best decisions for making capital outlays This year Waterways is considering buying five new backhoes to replace the backhoes it now has. The new backhoes are faster, cost less to run, provide for more accurate trench digging have comfort features for the operators, and have 1 -year maintenance agreements to go with them. The old backhoes are working ust f rine, but they do require considerable maintenance. The backhoe operators are very familia with the old backhoes ond would need to leam some new skills to use the new backhoes. The following information is available to use in deciding whe ther to purchase the new tackhoes, Click here to view PV table. (a) Evaluate in the following ways whether to purchase the new equipment or overhaul the old equipment. (Hint; for the old machine, the initial investment is the cost of the overhaul. For the new machine, subtract the solvage value of the old machine to determine the initial cost of the investment:) (1) Using the net present value method for buying new or keeping the old. For calculation purposes, use 5 decimal places as displayed in the foctor coble provided. If the net present value is nesotive, use either a negathe sign preceding the number es 45 or parentheser es (45). Round final answer to 0 decimol ploces, eg 5,275) (2) Using the cash payback method for each choice. (Hint: For the old machine, evaluate the payback of an overhaul) (Round anowers to 2 decimal ploces, es, 1.25 ] Waterways should equipment. (3) Comparing the profitability index for each choice (Round onswers to 2 decimal ploces, e.31 1.25) Waterways should equipment. Calculate the internal rate of return factor for the new and old blackhoes, (Rownd answers to 5 decimal ploces, es: 5.27647) (4) Comparing the internal rate of return for each choice to the required 9% discount rate: Waterways should equipment
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