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Interstate Manufacturing is considering either replacing one of its old machines with a new machine or having the old machine overhauled. Information about the

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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 12% rate of return on its investments. (PV of $1. FV of $1. PVA of $1, and EVA of S1) (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. Cost of old machine Cost of overhaul Annual expected revenues generated Annual cash operating costs after overhaul Salvage value of old machine in 5 years $118,000 241,000 93,000 34,000 17,00 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. Cost of new machine Salvage value of old machine now 41,000 Annual expected revenues generated Annual cash operating costs 28,000 Salvage value of new machine in 5 years ABOU

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