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 showbelow.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 softenerCurrentWaterSoftener$24,000$20,500$12,000$14,000PV of NetCash Flows$$$ 5,200$ 2,600Clean Duds computes depreciation on a straight-line basis. All equipment purchases are evaluated using a 12% discount rate.Required:(Ignore income taxes.)(72,495)(80,496)NewWaterSoftener$34,0001-a. Determine the present value of net cash flows using the total-cost approach. (Hint. Use Microsoft Excel to calculate the discountfactor(s).) (Enter any cash outflows with a minus sign. Do not round intermediate calculations and round final answers to thenearest dollar amount.)$ 9,300$ 6,200 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.)Purchase the new softenerUpgrade and Keep the old softener1-b. Should Clean Duds Laundromat upgrade the old water softener or purchase the new one?Purchase the new softenerUpgrade the old softenerPV of NetCash Flows$(72,495)$ (80,496)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 value41,602

It is the process of making decisions that involve the management of costs in order to achieve…

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 show 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 Salvage value now Salvage value eight years from now Current Water Softener $24,000 $20,500 $12,000 $14,000 $ 5,200 $ 2,600 New Water Softener $34,000 $9,300 $ 6,200

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 show 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 Salvage value now Salvage value eight years from now Current Water Softener $24,000 $20,500 $12,000 $14,000 $ 5,200 $ 2,600 New Water Softener $34,000 $9,300 $ 6,200

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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A mechanical engineer must recommend a new heating system to a commercial building owner. The owner intends to sell the building in 15 years. A gas fired furnace option has a design life of 5 years, an initial cost of $12,000, a replacement cost of $6,000 and annual operating costs of $3,500, but adds no value to the building when sold. A geothermal heat pump system has a design life of 10 years, an initial cost of $16,000, a replacement cost of $9,000, annual operating costs of $2,500, and increases the value of the building by $7,000, when it is sold at the end of year 15. Determine the equivalent uniform annual cost (EUAC) of costs for the option the engineer should recommend at an interest rate of 6.3%. Express your answer in $ to the nearest $10.
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