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)
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)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text: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
$ 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)
O $(47,200)
O $(54,800)
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