Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

help me whith this exercise? Interstate Manufacturing is considering either overhauling an old machine or replacing it with a new machine. Information about the two

help me whith this exercise?
image text in transcribed
Interstate Manufacturing is considering either overhauling an old machine or replacing it with a new machine. Information about the two alternatives follows. Management requires a 10% rate of return on its investments. (PV of $1, FV of \$1. PVA of $1, and EVA of $1 ) Note: Use appropriate factor(s) from the tables provided. Alternative 1: Keep the old machine and have it overhauled. This requires an initial investment of $150,000 and results in $52,000 of net cash flows in each of the next five years, After five years, it can be sold for a $21,000 salvage value. Alternative 2: Sell the old machine for $35,000 and buy a new one. The new machine requires an initial investment of $307,000 and can be sold for a $7,000 salvage value in five years, It would yield cost savings and higher sales, resulting in net cash flows of $58,000 in each of the next five years. Required: 1. Determine the net present value of alternative 1. 2. Determine the net present value of altemative 2 . 3. Which alternative should management select based on net present value? Complete this question by entering your answers in the tabs below. Determine the net present value of alternative 1. Note: Do not round intermediate calculations. Round your present value factor to 4 decimats and final answers to the nearest whole dollar. Interstate Manufacturing is considering either overhauling an old machine or replacing it with a new machine. Information about the two alternatives follows. Management requires a 10% rate of return on its investments. (PV of $1, FV of \$1. PVA of $1, and EVA of $1 ) Note: Use appropriate factor(s) from the tables provided. Alternative 1: Keep the old machine and have it overhauled. This requires an initial investment of $150,000 and results in $52,000 of net cash flows in each of the next five years, After five years, it can be sold for a $21,000 salvage value. Alternative 2: Sell the old machine for $35,000 and buy a new one. The new machine requires an initial investment of $307,000 and can be sold for a $7,000 salvage value in five years, It would yield cost savings and higher sales, resulting in net cash flows of $58,000 in each of the next five years. Required: 1. Determine the net present value of alternative 1. 2. Determine the net present value of altemative 2 . 3. Which alternative should management select based on net present value? Complete this question by entering your answers in the tabs below. Determine the net present value of alternative 1. Note: Do not round intermediate calculations. Round your present value factor to 4 decimats and final answers to the nearest whole dollar

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Accounting questions

Question

Tell what the word schizophrenia means.

Answered: 1 week ago

Question

manageremployee relationship deteriorating over time;

Answered: 1 week ago