Interstate Manufacturing is considering either replacing one of its old machines with a new machine or having the old machine overhauled. Information about the two alternatives follows. Management requires a 8% rate of return on its investments. Use the (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

Alternative 1: Keep the old machine and have it overhauled. If the old machine is overhauled, it will be kept for another five years and then sold for its salvage value $107,000 Cost of old machine Cost of overhaul 155.000 Annual expected revenues generated 116,000 39,000 Annual cash operating costs after overhaul Salvage value of old machine in 5 years 20,000 Alternative 2: Sell the old machine and buy a new one. The new machine is more efficient and will yield substantial operating cost savings with more product being produced and sold. $309,000 Cost of new machine 37,000 Salvage value of old machine now Annual expected revenues generated 87,000 Annual cash operating costs 22,000 Salvage value of new machine in 5 years 11,000