You are given the following present value factors at 8 percent, the Tehachapi Glass Company's minimum desired rate of return:
|
End of Period
|
Present Value of $1
|
Present Value of an Annuity of $1
|
|
1
|
0.926
|
0.926
|
|
2
|
0.857
|
1.783
|
|
3
|
0.794
|
2.577
|
|
4
|
0.735
|
3.312
|
|
5
|
0.681
|
3.993
|
|
6
|
0.63
|
4.623
|
The Tehachapi Glass Company is considering the replacement of a piece of equipment. The old machine machine has a carrying value of $800 and a remaining estimated life of five years, with no residual value at that time. Present residual value is $200. The new equipment will cost $1,200, including transportation and installation. It has an estimated life of five years, with no residual value. Annual cash operating costs are $405 for the old machine and $165 for the new machine. Round answers two decimal places.
a. Compute the present value of the operating cash outflows for the old machine
b. Compute the present value of the operating cash outflows for the new machine
c. Compute the present value of the cash operating savings if the new machine is purchased.
d. What is the net present value of the replacement alternative?