Waterways Continuing Problem (This is a continuation of the Waterways Problem from Chapters 1 through 12.) WCP.13 Waterways puts much emphasis on cash flow when it plans for capital investments. The company chose its discount rate of 8% based on the rate of return it must pay its owners and creditors. Using that rate, Waterways then uses different methods to determine the best decisions for making capital outlays. In 2022, Waterways is considering buying five new backhoes to replace the backhoes it now has at its installation and training division. The new backhoes are faster, cost less to run, provide for more accurate trench digging, have comfort features for the operators, and have associated one-year maintenance agreements. The old backhoes are working well, but they do require considerable maintenance. The operators are very familiar with the old backhoes and would need to learn some new skills to use the new equipment. The following information is available to use in deciding whether to purchase the new backhoes. Old Backhoes New Backhoes Purchase cost when new $90,000 $200,000 Salvage value now $42,000 None Investment in major overhaul needed in next year $55,000 None Salvage value in 8 years None $ 50,000 Remaining life 8 years Net cash flow generated each year $25,250 $ 41,000 Instructions a. Using the following methods, evaluate whether to purchase the new equipment or overhaul the old equipment. (Hint: For 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.) Ignore income taxes in your analysis. 1. Use the net present value method for buying new or keeping the old. 2. Use the payback method for each choice. (Hint: For the old machine, evaluate the payback of an overhaul.) 3. Compare the profitability index for each choice. 4. Compare the internal rate of return for each choice to the required 8% discount rate. b. Are there any intangible benefits or negatives that would influence this decision? c. What decision would you make and why? 8 years