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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
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 FVA 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 $151,000 and results in $46,000 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 $41,000 and buy a new one. The new machine requires an initial investment of $304,000 and can be sold for a $13,000 salvage value in five years. It would yield cost savings and higher sales, resulting in net cash flows of $56,000 in each of the next five years. Required: 1. Determine the net present value of alternative 1. 2. Determine the net present value of alternative 2 . 3. Which alternative should management select based on net present value? Determine the net present value of alternative 1 . Note: Do not round intermediate calculations. Round your present value factor to 4 decimals and final answers to the nearest whole dollar. Determine the net present value of alternative 2 . Note: Negative net present values should be indicated with a minus sign. Do not round intermediate calculations. Round your present value factor to 4 decimals and final answers to the nearest whole dollar. Which alternative should management select based on net present value
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