Allen College has a telephone system that is in poor condition. The system can be...
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Accounting
Allen College has a telephone system that is in poor condition. The system can 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
$150,000
Accumulated depreciation
$90,000
-
Overhaul cost needed now
$80,000
-
Annual cash operating costs
$30,000
$20,000
Salvage value now
$10,000
-
Salvage value in 8 years
$2,000
$15,000
Working capital required
-
$50,000
Allen College uses a 12% discount rate and the total cost approach to net present value analysis. Both alternatives are expected to have a useful life of eight years. The net present value of the alternative of overhauling the present system is closest to:
($232,272)
($108,000)
($238,232)
($228,232)
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