Hh.33. Clean Duds Laundromat has an Industrial water softener that enhances the water quality used in its washing machines. The watersoftener is approaching the end of its useful life and must be either overhauled or replaced. Details of the two alternatives are shownbelow.If the company overhauls Its current water softener, then it will be usable for eight more years. If, Instead, a new water softener ispurchased, it will be used for eight years, after which it will be replaced. The new water softener will be considerably more energyefficient, resulting in a substantial reduction in annual operating costs, as shown below:Purchase cost newRemaining book valueOverhaul needed nowAnnual cash operating costsSalvage value nowSalvage value eight years from nowPurchase the new softenerUpgrade and Keep the old softenerClean Duds computes depreciation on a straight-line basis. All equipment purchases are evaluated using a 14% discount rate.Required:(Ignore Income taxes.)1-a. Determine the present value of net cash flows using the total-cost approach. (Hint: Use Microsoft Excel to calculate the discountfactor(s).) (Enter any cash outflows with a minus sign. Do not round Intermediate calculations and round final answers to thenearest dollar amount.)O Purchase the new softenerO Upgrade the old softenerCurrentWaterSoftener$13,000$ 9,500$ 6,500$ 8,500$ 3,000$ 1,500PV of NetCash FlowsNewWaterSoftener$17,500Net present value$ 6,000$ 4,0001-b. Should Clean Duds Laundromat upgrade the old water softener or purchase the new one?2. Using the incremental-cost approach, determine the net present value in favor of (or against) purchasing the new water softener?(Hint: Use Microsoft Excel to calculate the discount factor(s).) (Do not round Intermediate calculations and round final answer to thenearest dollar amount.)

net present value is the difference between the present value of cash inflows or present value of…

Clean Duds Laundromat has an Industrial water softener that enhances the water quality used in its washing machines. The water softener is approaching the end of its useful life and must be either overhauled or replaced. Details of the two alternatives are shown below. If the company overhauls Its current water softener, then it will be usable for eight more years. If, Instead, a new water softener is purchased, it will be used for eight years, after which it will be replaced. The new water softener will be considerably more energy efficient, resulting in a substantial reduction in annual operating costs, as shown below: Purchase cost new Remaining book value Overhaul needed now Annual cash operating costs Current water Softener $13,000 $ 9,500 $ 6,500 $ 8,500 New Water Softener $17,500 $ 6,000

Clean Duds Laundromat has an Industrial water softener that enhances the water quality used in its washing machines. The water softener is approaching the end of its useful life and must be either overhauled or replaced. Details of the two alternatives are shown below. If the company overhauls Its current water softener, then it will be usable for eight more years. If, Instead, a new water softener is purchased, it will be used for eight years, after which it will be replaced. The new water softener will be considerably more energy efficient, resulting in a substantial reduction in annual operating costs, as shown below: Purchase cost new Remaining book value Overhaul needed now Annual cash operating costs Current water Softener $13,000 $ 9,500 $ 6,500 $ 8,500 New Water Softener $17,500 $ 6,000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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