Question 37 View Policies Current Attempt in Progress Waterways puts much emphasis on cash flow when it plans for capital investments. The company chose its discount rate of 7% based on the rate of return it must pay its owners and creditors. Using that rate Waterways then use different methods to determine the best decisions for making capital outlays This year Waterways is considering buying five new backhoes to replace the backhoes it now has. The new baches are fastercost less to provide for more accurate trench one have comfort features for the operators, and have 1-year maintenance agreements to go with them. The old backhoes are working just fine, but they do require considerable maintenance. The backhoe berators are very familiar with the old backhoes and would need to learn some news to use the new backhoes The following information is available to use in deciding whether to purchase the new backhoes. Purchase cost when new Salvage value now ventio n ed in next year Salvage value in 8 years Remaining life Netcash flow generated each year Old Backhoes New Backhoes $89.800 $198.994 $41.200 $54.900 $15.200 $89.000 8 years years $30.000 $44,200 Click here to view PV table For the old machine the in v estment is the cost of the over for the new in the following was whether to purchase the newegent or over the guipment. tothom dit them OP 1 .390A XIQNIU MacBook Pro Search View PDF Click here to view PV table (a) Evaluate in the following ways whether to purchase the new equipment or overhaul the old equipment. (HintFor the old machine, the initial investment is the cost of the overhaul. For the new machine, subtract the salvage value of the old machine to determine the initial cost of the investment.) (1) Using the net present value method for buying new or keeping the old. For calculation purposes se 5 decimal places on displayed in the factor table provided. If the net present value is negative, use either a negative sin preceding the number 45 or parentheseses (451. Round final answer to decimal places, s 5.275) New Backhoes Old Backhoes Net Present Values Waterways should equipment 2) Using the payback method for each choice. Hint. For the old machine evaluate the payback of an overh o und answers to decimal e 125 New Backhoes Old Backhoes Payback Period Waterways should equipment (3) Comparing the profitability index for each choice. (Round answers to 2 decimal places, eg. 1.25) New Backhoes Old Backhoes Profitability Index Waterways should equipment Calculate the internal rate of return factor for the new and old blackhoes. (Round answers to 5 decimal places, eg. 5.27647) New Backhoes Old Backhoes IRR Factor (4) Comparing the internal rate of return for each choice to the required 7% discount rate. Waterways should equipment Save for Later Attempts: 0 MacBook Pro ese c a Search ViewPDF
