ffff QUESTION 8Morrel University has a small shuttle bus that is in poor mechanical condition. The bus can be either overhauled now or replaced with a new shuttle bus. The following data have been gatheredconcerning these two alternatives (Ignore income taxes.):Purchase cost newRemaining net book valueMajor repair needed nowAnnual cash operating costsSalvage value nowTrade-in value in seven yearsPresent Bus$32,000$ 21,000$9,000$ 12,000$ 10,000$2,000New Bus$ 40,00000$ 8,0000$5,000The University could continue to use the present bus for the next seven years. Whether the present bus is used or a new bus is purchased, the bus would be traded in for another bus at the end ofseven years. The University uses a discount rate of 12% and the total cost approach to net present value analysis.If the present bus is repaired, the present value of the annual cash operating costs associated with this alternative is closest to:O $(36,500)O $(16,200)O $(47,200)O $(54,800)

The present value refers to the current value of the future cash flow. It can be calculated by…

QUESTION 8 Morrel University has a small shuttle bus that is in poor mechanical condition. The bus can be either overhauled now or replaced with a new shuttle bus. The following data have been gathered concerning these two alternatives (Ignore income taxes.): Purchase cost new Remaining net book value Major repair needed now Annual cash operating costs Salvage value now Trade-in value in seven years Present Bus $32,000 $ 21,000 $9,000 $ 12,000 $10,000 $2,000 New Bus O $(47,200) O $(54,800) $ 40,000 0 0 $ 8,000 0 $ 5,000 The University could continue to use the present bus for the next seven years. Whether the present bus is used or a new bus is purchased, the bus would be traded in for another bus at the end of seven years. The University uses a discount rate of 12% and the total cost approach to net present value analysis. If the present bus is repaired, the present value of the annual cash operating costs associated with this alternative is closest to: O $(36,500) O $(16,200)