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 discount factor(s).) (Enter any cash outflows with a minus sign. Do not round intermediate calculations and round final answers to the nearest dollar amount.)
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 discount factor(s).) (Enter any cash outflows with a minus sign. Do not round intermediate calculations and round final answers to the nearest dollar amount.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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
Transcribed Image Text: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
Salvage value now
Salvage value eight years from now
New
Water
Softener
Current
Water
Softener
$17,000
$13,500
$ 8,500
$10,500
$ 3,800
$ 23,500
$ 7,200
$ 1,900
$ 4,800
Clean 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 discount
factor(s).) (Enter any cash outflows with a minus sign. Do not round intermediate calculations and round final answers to the
nearest dollar amount.)
Purchase the new softener
Upgrade and Keep the old softener
PV of Net
Cash Flows
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