You Are Given the Following Present Value Factors at 8

question 18

Essay

You are given the following present value factors at 8 percent, the Tehachapi Glass Company's minimum desired rate of return:
$\begin{array}{ccc}\text { End of Period } & \text { Present Value of } \mathbf{\$ 1} & \begin{array}{c}\text { Present Value of an } \\\text { Annuity of } \mathbf{\$ 1}\end{array} \\1 & .926 & 926 \\2 & .857 & 1.783 \\3 & .794 & 2.577 \\4 & .735 & 3.312 \\5 & .681 & 3.993 \\6 & .630 & 4.623\end{array}$
The Tehachapi Glass Company is considering the replacement of a piece of equipment. The old machine has a carrying value of $800 and a remaining estimated life of five years, with no residual value at that time. Present residual value is $200. The new equipment will cost $1,200, including transportation and installation. It has an estimated life of five years, with no residual value then. Annual cash operating costs are $405 for the old machine and $165 for the new machine. Round answers to two decimal places.
a. Compute the present value of the operating cash outflows for the old machine.
b. Compute the present value of the operating cash outflows for the new machine.
c. Compute the present value of the cash operating savings if the new machine is purchased.
d. What is the net present value of the replacement alternative?

---

Definitions:

EOQ

The Economic Order Quantity is a formula used to determine the optimal order quantity that minimizes total inventory costs, including ordering and holding costs.

Demand Increase

A rise in the quantity of a product or service that consumers are willing and able to purchase at a given price.

Order Quantity

Order quantity is the specific number of units requested or purchased in a single order, often considered in inventory and supply chain management.

Economic Order Quantity

A calculation used to determine the optimal order quantity that minimizes the total costs associated with inventory, including holding and ordering costs.