ust be either overhauled or replaced with a new syst ro alternatives:

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
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(Ignore income taxes in this problem.) Your Company has a telephone system that is in poor condition. The system
must be either overhauled or replaced with a new system. The following data have been gathered concerning these
two alternatives:
Present
System
Proposed New System
Purchase cost when new
$100,000
$110,000
Accumulated depreciation,
90,000
Overhaul cost needed now
80,000
Working capital required
50,000
Annual cash operating costs
30,000
20,000
Salvage value now of old system
10,000
Salvage value in 8 years
2,000
15,000
Your Company uses a 12% discount rate and the total cost approach to capital budgeting analysis. Both alternatives
are expected to have a useful life of eight years. What is the net present value of the new system alternative? Enter
your answer without dollar signs. If the NPV is negative enter with a minus sign in front.
Transcribed Image Text:(Ignore income taxes in this problem.) Your Company has a telephone system that is in poor condition. The system must be either overhauled or replaced with a new system. The following data have been gathered concerning these two alternatives: Present System Proposed New System Purchase cost when new $100,000 $110,000 Accumulated depreciation, 90,000 Overhaul cost needed now 80,000 Working capital required 50,000 Annual cash operating costs 30,000 20,000 Salvage value now of old system 10,000 Salvage value in 8 years 2,000 15,000 Your Company uses a 12% discount rate and the total cost approach to capital budgeting analysis. Both alternatives are expected to have a useful life of eight years. What is the net present value of the new system alternative? Enter your answer without dollar signs. If the NPV is negative enter with a minus sign in front.
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