$$\text { Reference: } 10 - 08$$ Westland College Has a Telephone System That Is in Poor

$$\text { Reference: } 10 - 08$$ 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: $$\begin{array} { | l | l | c | } \hline & \begin{array} { l } \text { Present } \\\text { System }\end{array} & \begin{array} { l } \text { Proposed New } \\\text { System }\end{array} \\\hline \text { Purchase cost new } & \$ 250,000 & \$ 300,000 \\\hline \text { Accumulated depreciation } & \$ 240,000 & - \\\hline \text { Overhaul costs needed now } & \$ 230,000 & - \\\hline \text { Annual cash operating costs } & \$ 180,000 & \$ 170,000 \\\hline \text { Salvage value now } & \$ 160,000 & - \\\hline \text { Salvage value at the end of 8 years } & \$ 152,000 & \$ 165,000 \\\hline \text { Working capital required } & - & \$ 200,000 \\\hline\end{array}$$ 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.
-If the incremental cost approach rather than the total cost approach is used to evaluate alternatives, which statement below is true?

A) The incremental cost approach would facilitate an easy comparison of these two alternatives with any others the College might decide to consider.
B) If the College chooses between these alternatives, the purchase of the new system will be selected.
C) The College will reject both these alternatives as they both have negative net present values.
D) The net book value of the present machine will become relevant to the analysis.

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