Problem 24-6B Net present value of alternate investments P3Archer Foods is considering whether to overhaul an old freezer or replace it with a new freezer. Information about the two alternativesfollows. Management requires a 10% rate of return on its investments.Alternative 1: Keep the old freezer and have it overhauled. This requires an initial investment of $50,000, resulting in $10,000 of net cashflows in each of the next eight years. After eight years, it can be sold for a $4,000 salvage value.Alternative 2: Sell the old freezer for $5,000 and buy a new one. The new freezer requires an initial investment of $150,000 and can besold for an $8,000 salvage value in eight years. The new freezer is larger, would increase sales, and would result in net cash flows of$40,000 in each of the next eight years.Required1. 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?

Alternative 1:cash flow = $10,000Initial cost = $50,000Salvage value = $4,000Alternative 2:Cash flow…

rcher Foods is considering whether to overhaul an old freezer or replace it with a new freezer. Information about the two alternative llows. Management requires a 10% rate of return on its investments. lternative 1: Keep the old freezer and have it overhauled. This requires an initial investment of $50,000, resulting in $10,000 of net c ows in each of the next eight years. After eight years, it can be sold for a $4,000 salvage value. lternative 2: Sell the old freezer for $5,000 and buy a new one. The new freezer requires an initial investment of $150,000 and can be ld for an $8,000 salvage value in eight years. The new freezer is larger, would increase sales, and would result in net cash flows of #0,000 in each of the next eight years. equired Determine the net present value of alternative 1.

rcher Foods is considering whether to overhaul an old freezer or replace it with a new freezer. Information about the two alternative llows. Management requires a 10% rate of return on its investments. lternative 1: Keep the old freezer and have it overhauled. This requires an initial investment of $50,000, resulting in $10,000 of net c ows in each of the next eight years. After eight years, it can be sold for a $4,000 salvage value. lternative 2: Sell the old freezer for $5,000 and buy a new one. The new freezer requires an initial investment of $150,000 and can be ld for an $8,000 salvage value in eight years. The new freezer is larger, would increase sales, and would result in net cash flows of #0,000 in each of the next eight years. equired Determine the net present value of alternative 1.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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