Reference: 10-08
Westland College Has a Telephone System That Is

Reference: 10-08
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: $$\begin{array} { | l | c | c | } \hline & \begin{array} { l } \text { Present } \\\text { System }\end{array} & \begin{array} { l } \text { Proposed New } \\\text { System }\end{array} \\\hline \text { Purchase cost new } & \$ 250,000 & \$ 300,000 \\\hline \text { Accumulated depreciation } & \$ 240,000 & - \\\hline \text { Overhaul costs needed now } & \$ 230,000 & - \\\hline \text { Annual cash operating costs } & \$ 180,000 & \$ 170,000 \\\hline \text { Salvage value now } & \$ 160,000 & - \\\hline \text { Salvage value at the end of 8 years } & \$ 152,000 & \$ 165,000 \\\hline \text { Working capital required } & - & \$ 200,000 \\\hline\end{array}$$ Westland College uses a 10% discount rate and the total cost approach to capital budgeting analysis. Both alternatives are expected to have a useful life of eight years. The working capital required will be released in full at the end of the 8 years to be available for other purposes.
-The net present value of the alternative of purchasing the new system is:

A) ($969,895) .
B) ($1,169,895) .
C) ($1,076,495) .
D) ($1,236,495) .

Correct Answer:

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