Ch 24 Problem(s) Problem 24-4A Computing net present value of alternate Investments LO P3 8.5 points 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. Use the (PV of $1, FV 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 averhauled. If the old machine is overhauled, it will be kept for another five years and then sold for its salvage value. Boak $104,000 104.000 Print Cost of old machine Cost of overhaul Annual expected revenues generated Annual cash operating cost efter overhaul Salvage value of old machine in 5 years 43,000 18,000 References 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 $293,000 42,000 106,000 29,000 14.000 Required: 1. Determine the net present value of alternative 1. Initial cash investment (net) Chart values are based on: Year Subsequent Cash inflow (outflow) X Table factor Present Value 2. Determine the net present value of alternative 2. Initial cash investment (net) Subsequent Year Cash inflow X Table factor = (outflow) Present Value Now 3. Which alternative should management select