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Jackie De Paul, the owner of Inn - the - Maples bed and breakfast, is considering replacing the industrial size washer and dryer she uses
Jackie De Paul, the owner of InntheMaples bed and breakfast, is considering replacing the industrial size washer and dryer she uses
for the business. The current washer and dryer set still works but needs major repairs to extend its useful life.
If Jackie decides to repair the current washer and dryer set she estimates it will be usable for more years. If she purchases a new
washer and dryer, they will both be usable for years but would then need to be replaced. The new washer and dryer would be more
energy efficient and the washer would use considerably less water. Her analysis of the two options are shown below.
Jackie computes depreciation on a straightline basis. All equipment purchases are evaluated using an discount rate.
Required:
Ignore income taxes.
a Determine the present value of net cash flows using the totalcost approach. Hint: Use Microsoft Excel to calculate the discount
factors
Note: Enter any cash outflows with a minus sign. Do not round intermediate calculations and round final answer to the nearest
dollar amount.
b Should Jackie purchase a new washer and dryer or repair the existing units?
Purchase a new washer and dryer
Repair the existing units
Using the incrementalcost approach, determine the net present value in favour of keeping the old units? Hint: Use Microsoft Excel
to calculate the discount factors
Note: Do not round intermediate calculations and round final answer to the nearest dollar amount.
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