ss790--99 - The following information is available to use in deciding whether to purchase the new backhoes Old Backhoes New Backhoes Purchase cost when

ss790--99 - The following information is available to use...

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The following information is available to use in deciding whether to purchase the new backhoes.Old BackhoesNew BackhoesPurchase cost when new . . . . . . . . . . . . . . . . . . . . . . . . . $90,000 $200,000Salvage value now . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $42,000Investment in major overhaul needed in next year. . . . $55,000Salvage value in 8 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,000 $90,000Remaining life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 8 years 8 yearsNet cash flow generated each year . . . . . . . . . . . . . . . . . . $40,425 $53,900Instructions(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.(2) Using the payback method for each choice. (Hint: For the old machine, evaluate the payback of an overhaul.)(3) Comparing 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?
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  • Spring '17
  • Ellen Zitani
  • Net Present Value, Housekeeping Department, salvage value, Mr. Kleen, Backhoes New Backhoes

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