EIF Manufacturing Company needs to overhaul its drill press or buy a new one. The facts have been gathered, and they are as follows:

Required:
Calculate the NPV of both keeping the current drill press and buying a new one. Which alternative is the most desirable with a current required rate of return of 20%? Show computations, and assume no taxes.

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Current Machine New Machine Purchase Price, New S80,000 S100,000 Current book value 33,000 Overhaul needed now 40,000 Annual cash operating costs 70,000 40,000 Current salvage value 20,000 Salvage value in five years 5,000 20,000