Interstate Manufacturing is considering either overhauling an old machine or replacing it with a new machine. Information about the two alternatives follows. Management requires a 10% rate of return on its investments. (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 overhauled. This requires an initial investment of $156,000 and results in $56,000 of net cash flows in each of the next five years. After five years, it can be sold for a $17,000 salvage value. Alternative 2: Sell the old machine for $45,000 and buy a new one. The new machine requires an initial investment of $306,000 and can be sold for a $12,000 salvage value in five years. It would yield cost savings and higher sales, resulting in net cash flows of $47,000 in each of the next five years. Required: 1. Determine the net present value of alternative 1. 2. Determine the net present value of alternative 2. 3. Which alternative should management select based on net present value?

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