Archer Foods has a freezer that is in need of repair and is considering whether to replace the…

Archer Foods has a freezer that is in need of repair and is considering whether to replace the old freezer with a new freezer or have the old freezer extensively repaired. Information about the two alternatives follows. Management requires a 10% rate of return on its investments Alternative 1: Keep the old freezer and have it repaired. If the old freezer is repaired, it will be kept for another eight years and then sold for its salvage value Cost of old freezer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $75,000 Cost of repair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 Annual expected revenues generated . . . . . . . . . . . . . . . 63,000 Annual cash operating costs after repair . . . . . . . . . . . . . 55,000 Salvage value of old freezer in 8 years . . . . . . . . . . . . . . 3,000 Alternative 2: Sell the old freezer and buy a new one. The new freezer is larger than the old one and will allow the company to expand its product offerings, thereby generating more revenues. Also, it is more energy efficient and will yield substantial operating cost savings. Cost of new freezer……………………….. $150,000 Salvage value of old freezer now……………… 5,000 Annual expected revenues generated . . . . . . . . . . . . . . 68,000 Annual cash operating costs . . . . . . . . . . . . . . . . . . . . . . 30,000 Salvage value of new freezer in 8 years . . . . . . . . . . . . . 8,00 Required 1. Determine the net present value of alternative 1. 2. Determine the net present value of alternative 2. 3. Which alternative do you recommend that management select? Explain

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