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 $$1,$ and FVA of $$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.

References

Cost of old machine

$$113,000$

Cost of overhaul

$158,000$

Annual expected revenues generated $93,000$

Annual cash operating costs after $36,000$ overhaul

Salvage value of old machine in $5,21,000$

years

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.

$\backslash$table$[[$Cost of new machine,$$301,000$