Tulsa Company is considering investing in new bottling equipment and has two options: Option A has a lower initial cost but would require a significant expenditure to rebuild the machine after four years; Option B has higher maintenance costs, but also has a higher salvage value at the end of its useful life. Tulsa's cost of capital is 11 percent. The following estimates of the cash flows were developed by Tulsa's controller: Initial investment Annual cash inflows Annual cash outflows Costs to rebuild Salvage value Estimated useful life Option A $ 320,000 150,000 70,000 120,000 Option B $ 454,000 160,000 75,000 24,000 8 years 8 years Required: Calculate NPV. (Future Value of $1, Present Value of $1. Future Value Annuity of $1. Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign. Round your "Present Values" to the nearest whole dollar amount.) Option A Year Cash Flows PV factor Present Value 11% Initial Investment Annual Cash Flows 1-8 Cost to Rebuild 4 Salvage 8. Net Present Value Option B Year Cash Flows PV factor Present Value 11% Initial Investment < Prev 8 of 9 Next > ...

Tulsa Company is considering investing in new bottling equipment and has two options: Option A has a lower initial cost but would require a significant expenditure to rebuild the machine after four years; Option B has higher maintenance costs, but also has a higher salvage value at the end of its useful life. Tulsa's cost of capital is 11 percent. The following estimates of the cash flows were developed by Tulsa's controller: Initial investment Annual cash inflows Annual cash outflows Costs to rebuild Salvage value Estimated useful life Option A $ 320,000 150,000 70,000 120,000 Option B $ 454,000 160,000 75,000 24,000 8 years 8 years Required: Calculate NPV. (Future Value of $1, Present Value of $1. Future Value Annuity of $1. Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign. Round your "Present Values" to the nearest whole dollar amount.) Option A Year Cash Flows PV factor Present Value 11% Initial Investment Annual Cash Flows 1-8 Cost to Rebuild 4 Salvage 8. Net Present Value Option B Year Cash Flows PV factor Present Value 11% Initial Investment < Prev 8 of 9 Next > ...

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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