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 12% rate of return on its investments. Use the (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

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 12% rate of return on its investments. Use the (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 $114,000 144,000 91,000 40,000 24,000 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. Cost of new machine $296,000 38,000 116,000 23,000 14,000 Salvage value of old machine now Annual expected revenues generated Annual cash operating costs Salvage value of new machine in 5 years 1. Determine the net present value of alternative 1. Initial cash investment (net) Chart values are based on: Subsequent Table factor Year Cash inflow Present Value (outflow) 1 2 3 4 = 5 $ 0 2. Determine the net present value of alternative 2. Initial cash investment (net) Subsequent Cash inflow Year Table factor Present Value (outflow) 1 = 2 3 4 Now $ 0 3. Which alternative should management select? X