Replace Equipment A machine with a book value of $250,900 has an estimated six-year life. A proposal is offered to sell the old machine for $214,900 and replace it with a new machine at a cost of $283,600. The new machine has a six-year life with no residual value. The new machine would reduce annual direct labor costs from $49,000 to $39,200. a. Prepare a differential analysis dated April 11 on whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). If an amount is zero, enter "0". Use a minus sign to indicate subtracted or negative numbers or a loss. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) April 11 Continue with Old Machine (Alternative 1) Replace Old Machine (Alternative 2) Differential Effect on Income (Alternative 2) Revenues: Proceeds from sale of old machines Costs: Purchase price Direct labor (6 years) Income (Loss) b. Should the company continue with the old machine (Alternative 1) or replace the old machine (Alternative 2)? Internal Rate of Return A project is estimated to cost $143,885 and provide annual net cash flows of $35,000 for six years. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0 0.833 1.528 2 0.909 1.736 2.487 3.170 3.791 4.355 2.106 2.589 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 2.991 .893 0.870 1.690 1.626 2.402 2.283 3.037 2.855 3.605 3.353 4.111 3.785 4.564 4.160 4.9684.487 5.328 4.772 5.6505.019 3.326 3.605 3.837 8 4.868 5.335 5.759 6.145 4.031 4.192 Determine the internal rate of return for this project, using the Present Value of an Annuity of $1 at Compound Interest table shown above. % Net Present Value-Unequal Lives Project 1 requires an original investment of $40,600. The project will yield cash flows of $8,000 per year for five years. Project 2 has a calculated net present value of $10,900 over a three-year life. Project 1 could be sold at the end of three years for a price of $35,000. Use the Present Value of $1 at Compound Interest and the Present Value of an Annuity of $1 at Compound Interest tables shown below. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.909 0 .893 0.870 0.833 0.890 0.826 0.694 0.797 0.712 0.756 0.658 0.840 0.751 0.579 0.792 0.683 0.636 0.572 0.482 0.747 0.402 0.705 0.567 0.507 0.452 0.335 0.665 0.627 0.592 0.558 0.621 0.564 0.513 0.467 0.424 0.386 0.497 0.432 0.376 0.327 0.284 0.247 0.279 0.233 0.194 0.162 0.404 0.361 0.322 9 10 Present Value of an Annuity of $1 at Compound Interest Year 6% 15% 20% 0.833 2 10% 0.909 1.736 2.487 3.170 0.943 1.833 2.673 3.465 12% 0.893 1.690 2.402 3.037 1 0.870 .626 2.283 2.855 1.528 2.106 2.589 4 Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.909 0.893 0.870 0.833 1.833 1.736 1.690 1.626 1.528 2.673 2.487 2.402 2.283 2.106 3.465 3.170 3.037 2.855 2.589 4.212 3.791 3.605 3.353 2.991 4.917 4.355 4.111 3.785 3.326 5.582 4.868 4.564 4.160 3.605 6.210 5.335 4.968 4.487 3.837 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 a. Determine the net present value of Project 1 over a three-year life with residual value, assuming a minimum rate of return of 6%. If required, round to the nearest dollar. b. Which project provides the greatest net present value