Problem 24-4A Computing net present value of alternate investments LO P3 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. (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 $113,000 151,000 86,000 41,000 22,000 Cost of overhaul Annual expected revenues generated Annual cash operating costs after overhaul Salvage value of old machine in 5 years 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. $296,000 35,000 118,000 28,000 5,000 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 Required: 1. Determine the net present value of alternative 1. Initial cash investment (net) Chart values are based on: Required: 1. Determine the net present value of alternative 1. Initial cash investment (net) Chart values are based on: Subsequent Cash inflow (outflow) Year Table factor Present Value 4. 2. Determine the net present value of alternative 2. Initial cash investment (net) Subsequent Cash inflow (outflow) Present Value Table factor Year 3. 4. Now 23 Subsequent Cash inflow (outflow) Year Present Value Table factor 3. 4. 2. Determine the net present value of alternative 2. Initial cash investment (net) Subsequent Cash inflow (outflow) Year Table factor Present Value 4. Now 3. Which alternative should management select