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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

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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 10% rate of retum on its investments. (PV or 1. FV of $1. PVA of S1, and FVA of $1 (Use appropriate factor(a) 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 Contot overhaul Annual expected revenues generated Annual cash operating costs after overhaul Salvage value of old machine in 5 years $107.000 150,000 89,000 37.000 24,000 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 Cost of new machine Salvage value of old machine now Annual expected revenge generated Annual cash operating conte Salvage value of new machine in 5 years $297,000 42,000 116,000 24,000 6,000 Required

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