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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
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 10% rate of return on its investments. 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. Alternative 2: Sell the old machine and buy a new one. The new machine will be more efficient and will yield substantial operating cost savings with more products produced and sold. Determine the net present value of alternative 1. Determine the net present value of alternative 2. Which alternative do you recommend management select? Explain
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