The management of Devine Instrument Company is considering the purchase of a new drilling machine, model RoboDril

$1010$K$.$ According to the specifications and testing results, RoboDril will substantially increase productivity over AccuDril

$x10,$ the machine Devine is currently using.

The AccuDril was acquired $8$ years ago for $$120,000$ and is being depreciated using the straight$-$line method over a $10-$

year expected life and an estimated salvage value of $$20,000.$ The engineering department expects the AccuDril to keep

going for another $3$ years after a major overhaul at the end of its expected useful life. The estimated cost for the overhaul

is $$100,000.$ The overhauled machine will be depreciated using straight$-$line depreciation with no salvage value. The

overhaul will improve the machine's operating efficiency approximately $15\%$ for each of years $3,4,$ and $5.$ No other

operating conditions will be affected by the overhaul.

RoboDril $1010K$ is selling for $$240,000.$ Installing, testing, rearranging, and training will cost another $$10,000.$ The

manufacturer is willing to take the AccuDril as a trade$-$in for $$20,000.$ The RoboDril will be depreciated using the straight$-$

line method with no salvage value. New technology most likely will make RoboDril obsolete to the firm in $5$ years.

Variable operating cost for either machine is the same: $$11$ per machine hour $($cash$-$based$).$ Required:

Determine for each of years $0$ though $5($inclusive$)$ the after$-$tax cash flows for items that differ between the two alternatives.

Comp Assessment Tool iFrame iod $($in years$)$ for purchasing RoboDril $1010$K rather than having AccuDril X$10$ overhauled in $2$ years.

Assume for this calculation only that all cash flows $($other than those related to the net acquisition cost of the replacement asset$)-$

including tax effects$-$occur evenly throughout the year.

Using results generated in requirement $1,$ what is the present value of each decision alternative, keep vs$.$ replace?

Complete this question by entering your answers in the tabs below.

Req $1$ and $3$

Req $2$

Compute the payback period $($in years$)$ for purchasing RoboDril $1010$K rather than having AccuDril X$10$ overhauled in $2$ years.

Assume for this calculation only that all cash flows $($other than those related to the net acquisition cost of the replacement

asset$)-$including tax effects$-$occur evenly throughout the year. $($Round your answer to $1$ decimal place.$)$

$1.$ Determine for each of years $0$ though $5($inclusive$)$ the after$-$tax cash flows for items that differ between the two alternatives.

$2.$ Compute the payback period $($in years$)$ for purchasing RoboDril $1010$K rather than having AccuDril X$10$ overhauled in $2$ years. Assume for this calculation only that all cash flows $($other than those related to the net acquisition cost of the replacement asset$)$including tax effects$$occur evenly throughout the year.

$3.$ Using results generated in requirement $1,$ what is the present value of each decision alternative, keep vs$.$ replace?