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17. Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine 190-3, which has a cost of $220,000, a 3-year expected life, and after-tax cash flows (labor savings and depreciation) of $97,000 per year; and Machine 360-6, which has a cost of $320,000, a 6-year life, and after-tax cash flows of $93,400 per year. Knitting machine prices are not expected to rise because inflation will be offset by cheaper components (microprocessors) used in the machines. Assume that Filkins's cost of capital is 12%.

Calculate the two projects' extended NPVs. Do not round intermediate calculations. Round your answers to the nearest dollar.

Machine 190-3: $__

Machine 360-6: $__

Should the firm replace its old knitting machine? If so, which new machine should it use?

The firm (Select one)

1. should replace its old knitting machine with Machine 190-3
2. should replace its old knitting machine with Machine 360-6
3. should not replace its old knitting machine

By how much would the value of the company increase if it accepted the better machine? Do not round intermediate calculations. Round your answer to the nearest dollar.

$__

What is the equivalent annual annuity for each machine? Do not round intermediate calculations. Round your answers to the nearest dollar.

Machine 190-3: $ __

Machine 360-6: $ __

18. The Aubey Coffee Company is evaluating the within-plant distribution system for its new roasting, grinding, and packing plant. The two alternatives are (1) a conveyor system with a high initial cost but low annual operating costs and (2) several forklift trucks, which cost less but have considerably higher operating costs. The decision to construct the plant has already been made, and the choice here will have no effect on the overall revenues of the project. The cost of capital for the plant is 13%, and the projects' expected net costs are listed in the following table:

	Expected Net Cost
Year	Conveyor		Forklift
0	-$500,000		-$200,000
1	-120,000		-160,000
2	-120,000		-160,000
3	-120,000		-160,000
4	-120,000		-160,000
5	-20,000		-160,000

1. What is the IRR of each alternative?

The IRR of alternative 1 is (Select one from below) undefined 11% 13% 15%

The IRR of alternative 2 is (Select one from options below)

undefined 11% 13% 15%

2. What is the present value of costs of each alternative? Do not round intermediate calculations. Round your answers to the nearest dollar. Use a minus sign to enter negative values, if any.

Alternative 1: $__

Alternative 2: $__

Which method should be chosen? (select one)

IRR method or PV method

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