Interstate Manufacturing..... (**please follow question format**)

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. (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. 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 $105,000 143,000 87.000 52.000 19.000 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 revenues generated Annual cash operating costs Salvage value of new machine in 5 years $ 294,000 29.000 118,000 25,000 11,000 Required: 1. Determine the net present value of alternative 1. Initial cash investment (net) Chart values are based on: Year Subsequent Cash inflow (outflow) x Table factor Present Value 2. Determine the net present value of alternative 2. Initial cash investment (net) Year Subsequent Cash * Table factor inflow (outflow) - Present Value 2 $ 0 3. Which alternative should management select? 1. Determine the net present value of alternative 1. Initial cash investment (net) Chart values are based on: Year Subsequent Cashx inflow (outflow) * Table factor - Present Value Present value of cash inflows Present value of cash outflows Net present value Inflow (outflow) The Ur- Present Value Now $ 0 3. Which alternative should management select? Factor tables: PV of $1 TABLE B.1 Present Value of 1 p=1/(1 + )" Rate Periods 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 1236 15% 0 0.9901 0.9803 0.9706 0.9610 0.9515 0.9420 0.9327 0.9235 0.9143 0.9053 0.8963 0.8874 0.8787 0.8700 0.8613 0.8528 0.8444 0.8360 0.8277 0.8195 0.7798 0.7419 0.7059 0.6717 0.9804 0.9709 0 .9615 0.9612 0.9426 0 .9246 0.9423 0.9151 0 .8890 0.9238 0.8885 0.8548 0.9057 0.86260 .8219 0.8880 0.8375 0.7903 0.8706 0.8131 0.7599 0.8535 0.7894 0.7307 0.8368 0.7664 0.7026 0.8203 0.7441 0.6756 0.8043 0.7224 0.6496 0.7885 0.7014 0 .6246 0.7730 0.6810 0 .6006 0.75790.6611 0.5775 0.7430 0.6419 0 .5553 0.7284 0.6232 0 .5339 0.7142 0.60500.5134 0.7002 0.5874 0.4936 0.6864 0.5703 0.4746 0.6730 0.55370 .4564 0.6095 0.4776 0.3751 0.5521 0.4120 0.3083 0.5000 0.3554 0 .2534 0.4529 0.3066 0.2083 0.9524 0.9070 0.8638 0.8227 0.7835 0.7462 0.7107 0.6768 0.6446 0.6139 0.5847 0.5568 0.5303 0.5051 0.4810 0.4581 0.4363 0.4155 0.3957 0.3769 0.2953 0.2314 0.1813 0.1420 0.9434 0.8900 0.8396 .7921 0.7473 0.7050 0.6651 0.6274 0.5919 0.5584 0.5268 0.4970 0.4688 0.4423 0.4173 0.3936 0.3714 0.3503 0.3305 0.3118 0.2330 0.1741 0.1301 0.0972 0.9346 0.9259 0.9174 0.8734 0.8573 0.8417 0.8163 0.7938 0.7722 0.7629 0.7350 0.7084 0.7130 0.6806 0.6499 0.6663 0.6302 0.5963 0.6227 0.5835 0.5470 0.5820 0.5403 0 .5019 0.5439 0.5002 0.4604 0.5083 0.4632 0.4224 0.4751 0.4289 0.3875 0.4440 0.3971 0.3555 0.4150 0.3677 0.3262 0.38780.3405 0.2992 0.3624 0.3152 0.2745 0.3387 0.2919 0.2519 0.3166 0.27030.2311 0.2959 0.2502 0.2120 0.2765 0.2317 0.1945 0.2584 0.2145 0.1784 0.1842 0.1460 0.1160 0.1314 0.0994 0.0754 0.0937 0.0676 0.0490 0.0668 0.0460 0.0318 0.9091 0.8264 0.7513 0.6830 0.6209 0.5645 0.5132 0.4665 0.4241 0.3855 0.3505 0.3186 0.2897 0.2633 0.2394 0.2176 0.1978 0.1799 0.1635 0.1486 0.0923 0.0573 0.0356 0.0221 0.8929 0.7972 0.7118 0.6355 0.5674 0.5066 0.4523 0.4039 0.3606 0.3220 0.2875 0.2567 0.2292 0.2046 0.1827 0.1631 0.1456 0.1300 0.1161 0.1037 0.0588 0.0334 0.0189 0.0107 0.8696 0.7561 0.6575 0.5718 0.4972 0.4323 0.3759 0.3269 0.2843 0.2472 0.2149 0.1869 0.1625 0.1413 0.1229 0.1069 0.0929 0.0808 0.0703 0.0611 0.0304 0.0151 0.0075 0.0037 25 30 35 40 *Used to compute the present value of a known future amount. For example: How much would you need to invest today at 10% compounded semiannually to accumulate $5.000 in 6 years from today? Using the factors of n12 and i-5% (12 semiannual periods and a semiannual rate of 5%), the factor is 0.5568. You would need to invest 52,784 today (55.000 x 0.5568). FV of $1 TABLE B.21 Future Value of 1 f= (1 + i)" Rate Porlods 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 12% 15% 12 1.0000 1.0100 1.0201 1.0303 1.0406 1.0510 1.0615 1.0721 1.0829 1.0937 1.1046 1.1157 1.1268 1.1381 1.1495 1.1610 1.1726 1.1843 1.1961 1.2081 1.2202 1.2824 1.3478 1.4166 1.4889 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0200 1.0300 1.0400 1.0500 1.0600 1.0700 1.0800 1.0900 1.0404 1.0609 1.0816 1.1025 1.1236 1.1449 1.1664 1.1881 1.0612 1.0927 1.1249 1.1576 1.1910 1.2250 1.2597 1.2950 1.0824 1.1255 1.1699 1.2155 1.2625 1.3108 1.3605 1.4116 1.1041 1.1593 1.2167 1.2763 1.3382 1.4026 1.4693 1.5386 1.1262 1.1941 1.2653 1.3401 1.4185 1.5007 1.5869 1.6771 1.1487 1.2299 1.3159 1.4071 1.5036 1.6058 1.7138 1.8280 1.1717 1.2668 1.3686 1.4775 1.5938 1.7182 1.8509 1 .9926 1.1951 1.3048 1.4233 1.5513 1.6895 1.8385 1.9990 2.1719 1.21901.3439 1.4802 1.6289 1.7908 1.9672 2.1589 2.3674 1.2434 1.3842 1.5395 1.7103 1.8983 2.1049 2.3316 2.5804 1.2682 1.4258 1.6010 1.7959 2.0122 2.2522 2.5182 2.8127 1.2936 1.4685 1.66511.8856 2.1329 2.4098 2.7196 3.0658 1.3195 1.5126 1.73171.9799 2.26092.5785 2.93723.3417 1.3459 1.5580 1.8009 2.0789 2.3966 2.7590 3 .1722 3.6425 1.3728 1.60471.8730 2.1829 2.5404 2.9522 3.4259 3.9703 1.4002 1.6528 1.9479 2.2920 2.6928 3.1588 3.7000 4.3276 1.4282 1.7024 20258 2.4066 2.8543 3.3799 3.99604.7171 1.4568 1.7535 2.1068 2.5270 3.0256 3.6165 4 .3157 5.1417 1.4859 1.8061 2.1911 2.6533 3.2071 3.86974.6610 5.6044 1.6406 2.0938 2.6658 3.3864 4.2919 5.4274 6.8485 8.6231 1.8114 2.4273 3.2434 4.32195 .7435 7 .612310.0627 13.2677 1.999 2.8139 3.9461 5.5160 7.6861 10.6766 14.7853 20.4140 2.2080 3.2620 4.8010 7.0400 10.2857 14.9745 21.7245 31.4094 1.0000 1.0000 1.1000 1.1200 1.2100 1.2544 1.3310 1.4049 1.4641 1.5735 1.6105 1.7623 1.7716 1.9738 1.9487 2.2107 2.1436 2.4760 2.3579 2.7731 2.5937 3.1058 2.8531 3.4785 3.1384 3.8960 3.4523 4.3635 3.7975 4.8871 4.1772 5.4736 4.5950 6.1304 5.0545 6.8660 5.5599 7.6900 6.1159 8.6128 6.7275 9.6463 10.8347 17.0001 17.4494 29.9599 28.1024 52.7996 45.2593 93.0510 1.0000 1.1500 1.3225 1.5209 1.7490 2.0114 2.3131 2.6600 3.0590 3.5179 4.0456 4.6524 5.3503 6.1528 7.0757 8.1371 9.3576 10.7613 12.3755 14.2318 16.3665 32.9190 66.2118 133.1755 267.8635 14 35 "Used to compute the future value of a known present amount. For example: What is the accumulated value of $3,000 invested today at 8% compounded quarterly for 5 years? Using the factors of = 20 and i = 2 20 quarterly periods and a quarterly interest rate of 2%), the factor is 1 4859. The accumulated value is $4.457.70 ($3.000 x 1.4859). FVA of $1 f=[(1 + i)" - 1/i TABLE B.4 Future Value of an Annuity of 1 Rate 7% Periods 1% 2% 3% 4% 5% 6% 8% 9% 10% 12% 15% 1.0000 1.00001.0000 1.0000 1.0000 10000 1.0000 1.0000 1.0000 1.0000 2.0100 2.0200 2.0300 2.0400 2.0500 2.0600 2.0700 2 .0800 2.0900 2.1000 3.0301 3.0604 3.0909 3.1216 3.1525 3.1836 3.2149 3 .2464 3.2781 3.3100 4.0604 4.1216 4.1836 4.2465 4.3101 4.3746 4.4399 4.5061 4.5731 4.6410 5.1010 5.2040 5.3091 5.4163 5.5256 5.6371 5.7507 5 .8666 5.9847 6.1051 6.1520 6.3081 6.4684 6.6330 6.80196 .9753 7.1533 7.3359 7.5233 7.7156 7.21357.4343 7.66257.89838.1420 8.3938 8.65408.9228 9.2004 9.4872 8.2857 8.5830 8.8923 9 .2142 9.5491 9.8975 10.259810.6366 11.0285 11.4359 9.3685 9.7546 10.1591 10.5828 11.0266 11.4913 11.9780 12.4876 13.0210 13.5795 10.4622 10.9497 11.4639 12.0061 12.5779 13.1808 13.8164 14.4866 15.1929 15.9374 11.5668 12.1687 12.8078 13.4864 14.2068 14.9716 15.7836 16.6455 17.5603 18.5312 12.6825 13.4121 14.1920 15.0258 15 917116 8699 15.9171 16.8699 17.8885 17.888518.977120.1407 18.9771 21,3843 13.8093 14.6803 15.6178 16.6268 17.7130 18.882120.1406 21.4953 22.9534 24.5227 14.9474 15.9739 17.0863 18.2919 19.5986 21.0151 22.5505 24.2149 26.0192 27.9750 16.0969 17.2934 18.5989 20.0236 21.5786 23.2760 25.1290 27.1521 29.360931.7725 17.2579 18.6393 20.1569 21.8245 23.6575 25.6725 27.8881 30.3243 33.0034 35.9497 18.4304 20.0121 21.7616 23.6975 25.8404 28.2129 30.8402 33.7502 36.9737 40.5447 19.6147 21.4123 23.4144 25.6454 28.1324 30.9057 33.999037.450241.301345.5992 20.8109 22.8406 25.1169 27.6712 30.5390 33.7600 37.37904 1.4463 46.0185 51.1591 22.0190 24.2974 26.8704 29.7781 33,0660 36.7856 40.9955 45.7620 51.1601 57.2750 28.2432 32.0303 36.4593 41.6459 47.7271 54.864563.2490 73.1059 84.700998.3471 34.7849 40.5681 47.5754 56.084966.4388 79.0582 94.4608 113.2832 136.3075 164.4940 41.6603 49.994560.462173.652290.3203 111.4348 138.2369 172.3168 215.7108 271.0244 48.8864 60.4020 75.4013 95.0255 120.7998 154.7620 199.6351 259.0565 337.8824 442.5926 1.0000 2.1200 3.3744 4.7793 6.3528 8.1152 10.0890 12.2997 14.7757 17.5487 20.6546 24.1331 28.0291 32.3926 37.2797 42.7533 48.8837 55.7497 63.4397 72.0524 133.3339 241.3327 431.6635 767.0914 1.0000 2.1500 3.4725 4.9934 6.7424 8.7537 11.0668 13.7268 16.7858 20.3037 24.3493 29.0017 34.3519 40.5047 47.5804 55.7175 65.0751 75.8364 88.2118 102.4436 2 12.7930 434.7451 8 81.1702 1,779,0903 13 19 20 25 30 35 40 Used to calculate the future value of a series of equal payments made at the end of each period. For example: What is the future value of $4,000 per year for 6 years assuming an annual interest rate of 8 ? For (n=6, 8%), the FV factor is 7.3350, $4,000 per year for 6 years accumulates to $29.343.60 ($4.000 x 7.3359)