11–155
11–156
78.
Carlson Manufacturing has some equipment that needs to be rebuilt or replaced. The
following information has been gathered relative to this decision:
Present
Equipment
New
Equipment
Purchase
cost new
$50,000
$48,000
Remaining
book value
$30,000
–
Cost to
rebuild now
$25,000
–
Major
maintenance
at the end of
3 years
$8,000
$5,000
Annual cash
operating
costs
$10,000
$8,000
Salvage
value at the
end of 5
years
$3,000
$7,000
Salvage
value now
$9,000
–
Carlson uses the total cost approach to net present value analysis and a discount rate of
12%. Regardless of which option is chosen, rebuild or replace, at the end of five years
Carlson Manufacturing will have no future use for the equipment.
If the new equipment is purchased, the present value of the cash flows that occur now is:
11–157
11–158
79.
Carlson Manufacturing has some equipment that needs to be rebuilt or replaced. The
following information has been gathered relative to this decision:
Present Equipment
New Equipment
Purchase cost new
$50,000
$48,000
Remaining book value
$30,000
–
Cost to rebuild now
$25,000
–
Major maintenance at the end of
3 years
$8,000
$5,000
Annual cash operating costs
$10,000
$8,000
Salvage value at the end of 5
years
$3,000
$7,000
Salvage value now
$9,000
–
Carlson uses the total cost approach to net present value analysis and a discount rate of
12%. Regardless of which option is chosen, rebuild or replace, at the end of five years
Carlson Manufacturing will have no future use for the equipment.
If the new equipment is purchased, the present value of the annual cash operating costs
associated with this alternative is:
11–159
11–160
80.
Carlson Manufacturing has some equipment that needs to be rebuilt or replaced. The
following information has been gathered relative to this decision:
Present Equipment
New
Equipment
Purchase
cost new
$50,000
$48,000
Remaining
book value
$30,000
–
Cost to
rebuild now
$25,000
–
Major
maintenance
at the end of
3 years
$8,000
$5,000
Annual cash
operating
costs
$10,000
$8,000
Salvage
value at the
end of 5
years
$3,000
$7,000
Salvage
value now
$9,000
–
Carlson uses the total cost approach to net present value analysis and a discount rate of
12%. Regardless of which option is chosen, rebuild or replace, at the end of five years
Carlson Manufacturing will have no future use for the equipment.
If the equipment is rebuilt, the present value of the cash flows that occur now is:
11–161
11–162
81.
The management of Mashiah Corporation is considering the purchase of a machine that
would cost $290,000, would last for 6 years, and would have no salvage value. The
machine would reduce labor and other costs by $102,000 per year. The company requires
a minimum pretax return of 13% on all investment projects.
The present value of the annual cost savings of $102,000 is closest to:
82.
The management of Mashiah Corporation is considering the purchase of a machine that
would cost $290,000, would last for 6 years, and would have no salvage value. The
machine would reduce labor and other costs by $102,000 per year. The company requires
a minimum pretax return of 13% on all investment projects.
The net present value of the proposed project is closest to:
11–164
83.
The Sawyer Corporation has $80,000 to invest and is considering two different projects, X
and Y. The following data are available on the projects:
Project
X
Project
Y
Cost of equipment needed
now
$80,000
–
Working capital requirement
–
$80,000
Annual cash operating
inflows
$23,000
$18,000
Salvage value in 5 years
$6,000
–
Both projects will have a useful life of 5 years; at the end of 5 years, the working capital
will be released for use elsewhere. Sawyer’s discount rate is 12%.
The net present value of project X is closest to:
84.
The Sawyer Corporation has $80,000 to invest and is considering two different projects, X
and Y. The following data are available on the projects:
Project
X
Project
Y
Cost of equipment needed
now
$80,000
–
Working capital requirement
–
$80,000
Annual cash operating
inflows
$23,000
$18,000
Salvage value in 5 years
$6,000
–
Both projects will have a useful life of 5 years; at the end of 5 years, the working capital
will be released for use elsewhere. Sawyer’s discount rate is 12%.
The net present value of project Y is closest to:
85.
Clairmont Corporation is considering the purchase of a machine that would cost $150,000
and would last for 5 years. At the end of 5 years, the machine would have a salvage value
of $18,000. By reducing labor and other operating costs, the machine would provide annual
cost savings of $37,000. The company requires a minimum pretax return of 12% on all
investment projects.
The present value of the annual cost savings of $37,000 is closest to:
86.
Clairmont Corporation is considering the purchase of a machine that would cost $150,000
and would last for 5 years. At the end of 5 years, the machine would have a salvage value
of $18,000. By reducing labor and other operating costs, the machine would provide annual
cost savings of $37,000. The company requires a minimum pretax return of 12% on all
investment projects.
The net present value of the proposed project is closest to:
87.
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.
11–170
88.
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 replacing the present system with the
proposed new system is closest to:
11–171
11–172
89.
Westland College has a telephone system that is in poor condition. The system either can
be overhauled or replaced with a new system. The following data have been gathered
concerning these two alternatives:
Present
System
New
System
Purchase
cost when
new
$150,000
$200,000
Accumulated
depreciation
$140,000
–
Overhaul
costs
needed now
$130,000
–
Annual cash
operating
costs
$80,000
$70,000
Salvage
value now
$60,000
–
Salvage
value in 8
years
$52,000
$65,000
Working
capital
required
–
$100,000
Westland College uses a 10% discount rate and the total cost approach to net present
value analysis. The working capital required under the new system would be released for
use elsewhere at the conclusion of the project. Both alternatives are expected to have a
useful life of eight years.
The net present value of overhauling the present system is closest to:
11–174
90.
Westland College has a telephone system that is in poor condition. The system either can
be overhauled or replaced with a new system. The following data have been gathered
concerning these two alternatives:
Present
System
New
System
Purchase
cost when
new
$150,000
$200,000
Accumulated
depreciation
$140,000
–
Overhaul
costs
needed now
$130,000
–
Annual cash
operating
costs
$80,000
$70,000
Salvage
value now
$60,000
–
Salvage
value in 8
years
$52,000
$65,000
Working
capital
required
–
$100,000
Westland College uses a 10% discount rate and the total cost approach to net present
value analysis. The working capital required under the new system would be released for
use elsewhere at the conclusion of the project. Both alternatives are expected to have a
useful life of eight years.