Santana Rey is considering the purchase of equipment for Business Solutions that would allow the company to add a new product to its computer furniture line. The equipment is expected to cost $285,000 and to have a five-year life and no salvage value. It will be depreciated on a straight-line basis. Business Solutions expects to sell 100 units of the equipment's product each year. The expected annual income related to this equipment follows. $379,000 Sales Costs Materials, labor, and overhead (except depreciation) Depreciation on new equipment Selling and administrative expenses Total costs and expenses Pretax income Income taxes (35%) Net income 191.000 57,000 40.000 288,000 91, 000 31,850 $ 59, 150 Required: (1) Compute the payback period. Payback Period Choose Denominator: Choose Numerator: Payback Period Payback period 1 H: Neyt (2) Compute the accounting rate of return for this equipment Accounting Rate of Return Choose Denominator Choose Numerator Accounting Rate of Return Accounting rate of retum 1 Check my Problem 11-4A 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. (PV of $1. EV 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 Cost of overhaul Annual expected revenues generated Annual cash operating costs after overhaul Salvage value of old machine in 5 years $122,000 143,000 94,000 43,000 22,000 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 Salvage value of old machine now Annual expected revenues generated Annual cash operating costs Salvage value of new machine in 5 years $304,000 39,000 119.000 21.000 13.000 1. Determine the net present value of alternative 1 Initial cash investment (net) Chart values are based on: Year Subsequent Cash inflow (outflow) Table factor Present Value 1 AN 11111 5 2. Determine the net present value of alternative 2. Initial cash investment (net) Year Subsequent Cash Table factor inflow (outflow) Present Value 1 2 II 2. Determine the net present value of alternative 2. Initial cash investment (net) Subsequent Cash Year Table factor inflow (outflow) Present Value II 1 2 3 11 = 4 III 5 Now 3. Which alternative should management select