NPV Total and Differential Analysis of Replacement Decision

Assume Pinstripes Cleaning and Restoration, near Dallas, Texas, must either have a complete overhaul of its current dry$-$cleaning system or purchase a new one. Its cost of capital is $16\%.$ The following cost projections have been developed:

If Pinstripes keeps the old system, it will have to be overhauled immediately. With the overhaul, the old system will have a useful life of five more years.

Required

a$.$ Use the total cost approach to evaluate the alternatives of keeping the old system and purchasing the new system. Indicate which alternative is preferred.

Hint: Use a negative sign to indicate a negative net present value.

Net present value of operating old system: $$(272,360)$ :

Net present value of purchasing and operating new system: $$240,254$

Net savings of purchasing new system hat$(vv)darr$

b$.$ Use the differential cost approach to evaluate the desirability of purchasing the new system.

Note: There may be slight differences between your answers in part a and part b due to rounding.

Note: Round each of your answers below to the nearest whole dollar.