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. This year Waterways is considering buying five new backhoes to replace the backhoes it now has. The new backhoes are faster, cost less to run, provide for more accurate trench digging, 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 operators are very familiar with the old backhoes and would need to learn some new skills 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 Investment in major overhaul needed in next year Salvage value in 8 years Remaining life Net cash flow generated each year Old Backhoes New Backhoes $91,000 $200,100 $41,700 $54,782 $15,100 $91,000 8 years 8 years $30,100 $44,000 Click here to view PV table. (a) Evaluate in the following ways 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.) (1) Using the net present value method for buying new or keeping the old. (For calculation purposes, use 5 decimal places as displayed in the factor table provided. If the net present value is negative, use either a negative sign preceding the number eg - 45 or parentheses eg (45). Round final answer to 0 decimal places, e.g. 5,275.) New Backhoes Old Backhoes Net Present Value $ $ Waterways should buy New Backhoes equipment (2) Using the payback method for each choice. (Hint: For the old machine, evaluate the payback of an overhaul.) (Round answers to 2 decimal places, e.g. 1.25) New Backhoes Old Backhoes Payback Period years years Waterways should retain Old Backhoes equipment. (3) Comparing the profitability index for each choice. (Round answers to 2 decimal places, e.g. 1.25) New Backhoes Old Backhoes Profitability Index Waterways should retain Old Backhoes equipment Calculate the internal rate of return factor for the new and old blackhoes. (Round answers to 5 decimal places, e.g. 5.27647.) New Backhoes Old Backhoes IRR Factor (4) Comparing the internal rate of return for each choice to the required 8% discount rate. Waterways should retain Old Backhoes equipment Table 1 Future Value of 1 5% 15% Periods 0 1 2 3 4 5 6 7 8 9 6% 7% 8% 9% 10% 11% 12% 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.04000 1.05000 1.06000 1.07000 1.08000 1.09000 1.10000 1.11000 1.12000 1.15000 1.08160 1.10250 1.12360 1.14490 1.16640 1.18810 1.21000 1.23210 1.25440 1.32250 1.12486 1.15763 1.191021.22504 1.25971 1.29503 1.33100 1.36763 1.40493 1.52088 1.16986 1.21551 1.26248 1.31080 1.36049 1.41158 1.46410 1.51807 1.57352 1.74901 1.21665 1.27628 1.33823 1.40255 1.46933 1.53862 1.61051 1.68506 1.76234 2.01136 1.26532 1.34010 1.41852 1.50073 1.58687 1.67710 1.77156 1.87041 1.97382 2.31306 1.31593 1.40710 1.50363 1.60578 1.71382 1.82804 1.94872 2.07616 2.21068 2.66002 1.36857 1.47746 1.59385 1.71819 1.85093 1.99256 2.14359 2.30454 2.47596 3.05902 1.42331 1.55133 1.68948 1.83846 1.99900 2.17189 2.357952.55803 2.77308 3.51788 1.48024 1.62889 1.79085 1.96715 2.15892 2.36736 2.59374 2.83942 3.10585 4.04556 1.53945 1.71034 1.89830 2.10485 2.33164 2.58043 2.85312 3.15176 3.47855 4.65239 1.60103 1.79586 2.01220 2.25219 2.51817 2.81267 3.13843 3.49845 3.89598 5.35025 1.66507 1.88565 2.13293 2.40985 2.71962 3.06581 3.45227 3.88328 4.36349 6.15279 1.73168 1.97993 2.26090 2.57853 2.93719 3.34173 3.79750 4.31044 4.88711 7.07571 1.80094 2.07893 2.39656 2.759033.17217 3.64248 4.17725 4.78459 5.47357 8.13706 1.87298 2.18287 2.54035 2.95216 3.42594 3.97031 4.59497 5.31089 6.13039 9.35762 1.94790 2.29202 2.69277 3.15882 3.70002 4.32763 5.05447 5.89509 6.86604 10.76126 2.02582 2.40662 2.85434 3.37993 3.99602 4.71712 5.55992 6.54355 7.68997 12.37545 2.10685 2.52695 3.02560 3.61653 4.31570 5.14166 6.11591 7.26334 8.61276 14.23177 10 11 12 13 14 15 16 17 18 19 20 2.19112 2.65330 3.20714 3.86968 4.66096 5.60441 6.72750 8.06231 9.64629 16.36654 Table 2 Future Value of an Annuity of 1 Payments 6% 7% 8% 9% 10% 12% 15% 1 1.00000 1.00000 1.00000 1.00000 5% 1.00000 1.00000 2.04000 2.05000 3.12160 3.15250 2 1.0000 2.0700 3.2149 2.08000 2.09000 1.00000 2.06000 3.18360 4.37462 1.00000 2.10000 3.31000 11% 1.00000 2.11000 3.34210 4.70973 2.12000 2.15000 3 3.24640 3.27810 3.37440 3.47250 4 4.24646 4.31013 4.4399 4.50611 4.57313 4.64100 4.77933 4.99338 5 5.41632 5.52563 5.63709 5.7507 5.86660 5.98471 6.10510 6.22780 6.35285 6.74238 6 6.63298 6.80191 6.97532 7.1533 7.33592 7.52334 7.71561 7.91286 8.11519 8.75374 7 7.89829 8.14201 8.39384 8.6540 8.92280 9.20044 9.48717 9.78327 10.08901 11.06680 8 9.21423 9.54911 9.89747 10.2598 10.63663 11.02847 11.43589 11.85943 12.29969 13.72682 9 11.49132 11.9780 12.48756 13.02104 13.57948 14.16397 14.77566 16.78584 10.58280 11.02656 12.00611 12.57789 10 13.18079 13.8164 14.48656 15.19293 15.93743 16.72201 17.54874 20.30372 11 13.48635 14.20679 14.97164 15.7836 16.64549 17.56029 20.65458 24.34928 18.53117 19.56143 21.38428 22.71319 12 15.02581 15.91713 16.86994 17.8885 18.97713 20.14072 24.13313 29.00167 13 16.62684 17.71298 18.88214 20.1406 21.49530 22.95339 24.52271 26.21164 28.02911 34.35192 14 18.29191 19.59863 21.01507 22.5505 24.21492 26.01919 27.97498 30.09492 32.39260 40.50471 15 20.02359 21.57856 23.27597 25.1290 27.15211 29.36092 31.77248 34.40536 37.27972 47.58041 16 21.82453 23.65749 25.67253 27.8881 30.32428 33.00340 55.71747 17 23.69751 25.84037 28.21288 30.8402 33.75023 36.97351 35.94973 39.18995 42.75328 40.54470 44.50084 48.88367 45.59917 50.39593 55.74972 65.07509 18 25.64541 28.13238 30.90565 33.9990 37.45024 41.30134 75.83636 19 27.67123 30.53900 33.75999 37.3790 41.44626 46.01846 51.15909 56.93949 63.43968 88.21181 20 29.77808 33.06595 36.78559 40.9955 45.76196 51.16012 57.27500 64.20283 72.05244 102.44358 5% 8% 11% 1 7 Table 3 Present Value of 1 (n) Periods 6% 7% 9% 10% 12% 15% .96154 .95238 .94340 .93458 .92593 .91743 90909 90090 89286 86957 2 .92456 .90703 .89000 .87344 .85734 .84168 82645 81162 79719.75614 3 .88900 .86384 .83962 .81630.79383.77218 .7513273119 .71178 .65752 4 .85480 .82270 .79209 76290 .73503 .70843 .68301 .65873 .63552.57175 5 .82193 .7835374726 71299.68058 .64993 .62092 .59345.56743.49718 6 .79031 .74622 70496 66634.63017 .59627 56447 .53464 .5066343233 .75992 71068 .66506 .62275 .58349 54703 .51316 48166 .45235 .37594 8 73069 .67684 .62741 .58201 54027 50187 .46651 .4339340388 .32690 9 .70259 .64461 .5919054393 50025 .46043 .42410 39092.36061 .28426 10 .67556 .61391 .55839.50835 46319.42241 38554 35218 32197 24719 11 .64958 .58468 .52679.4750942888 .38753 .35049 31728 .28748 21494 .62460 .55684 49697 4440139711 .35554 .31863 .28584 25668 18691 13 .60057 .53032 .46884 41496 36770 .32618 28966 25751 .2291716253 14 .57748 .50507 .44230 38782 .34046 29925 26333 23199 .20462 14133 .55526 ,48102 41727 36245 31524 27454 .23939 209001827012289 16 .53391 .45811 .39365 33873 .29189 .25187 .21763.1882916312.10687 17 .51337 .43630 .37136 31657 27027 23107 .19785 .16963 14564.09293 18 .49363 41552 35034 29586 25025 21199 .17986 .15282.13004 .08081 12 15 19 .47464 .39573 .33051 27615 .23171 .19449 .16351 .13768 .11611 .07027 20 .45639 .37689 31180 25842 .21455 .17843 .14864 .12403 .10367 .06110 Table 4 Present Value of an Annuity of 1 Payments 5% 6% 7% 8% 9% 10% 11% 12% 15% 1 .96154 .95238 .94340 .93458 .92593 .91743 .90909 .86957 .90090 .89286 1.71252 1.69005 2 1.88609 1.85941 1.83339 1.80802 1.78326 1.75911 1.73554 1.62571 3 2.77509 2.72325 2.67301 2.62432 2.57710 2.53130 2.48685 2.44371 2.40183 2.28323 4 3.62990 3.54595 3.46511 3.38721 3.31213 3.23972 3.16986 3.10245 3.03735 2.85498 5 4.45182 4.32948 4.21236 4.10020 3.99271 3.88965 3.79079 3.69590 3.60478 3.35216 6 5.24214 5.07569 4.91732 4.76654 4.62288 4.48592 4.35526 4.23054 4.11141 3.78448 7 6.00205 5.78637 5.58238 5.38929 5.20637 5.03295 4.86842 4.71220 4.56376 4.16042 8 6.73274 6.46321 6.20979 5.97130 5.74664 5.53482 5.33493 5.14612 4.96764 4.48732 9 7.43533 7.10782 6.80169 6.51523 6.24689 10 8.11090 7.72173 7.36009 7.02358 6.71008 11 8.76048 8.30641 7.88687 7.49867 7.13896 5.99525 5.75902 5.53705 5.32825 4.77158 6.41766 6.14457 5.88923 5.650225.01877 6.80519 6.49506 6.20652 5.93770 5.23371 7.16073 6.81369 6.49236 6.19437 5.42062 7.48690 7.10336 6.74987 6.42355 5.58315 12 9.38507 8.86325 8.38384 7.94269 7.53608 13 9.98565 9.39357 8.85268 8.35765 7.90378 14 10.56312 9.89864 9.29498 8.74547 8.24424 7.78615 7.36669 6.98187 6.62817 5.72448 15 11.11839 10.37966 9.71225 9.10791 16 11.65230 12.16567 8.55948 8.06069 7.60608 7.19087 6.81086 5.84737 8.85137 8.31256 7.82371 7.37916 6.97399 5.95424 9.12164 8.54363 8.02155 7.54879 7.11963 6.04716 9.37189 8.75563 8.20141 7.701627.24967 6.12797 10.83777 10.10590 9.44665 11.27407 10.47726 9.76322 11.68959 10.82760 10.05909 17 18 12.65930 19 13.13394 12.08532 11.15812 10.33560 9.60360 8.95012 8.36492 7.83929 7.36578 6.19823 20 13.59033 12.46221 11.46992 10.59401 9.81815 9.12855 8.51356 7.96333 7.46944 6.25933