(Ignore income taxes in this problem.) Lichty Car Wash has some equipment that n

Question

(Ignore income taxes in this problem.) Lichty Car Wash has some equipment that needs to be rebuilt or replaced. The following information has been gathered concerning this decision:

Present Equipment New Equipment
purchase cost new.................................. $47,000 $45,000
remaining book value.............................. $20,000
cost to rebuild now................................. $20,000
major maintenance at the end of 3 years..... $5,000 $3,000
annual cash operating costs..................... $9,000 $7,000
salvage value in 5 years .......................... $2,000 $6,000
salvage value now .................................. $8,000

Lichty uses the total-cost approach and a discount rate of 10% in making capital budgeting decisions. Regardless of which option is chosen, rebuild or replace, at the end of five years Mr. Lichty plans to close the car wash and retire.


If the new equipment is purchased, the present value of all cash flows that occur now is:



a.$(45,000)

b.$(39,000)

c.$(37,000)

d.$(34,000)

Explanation / Answer

c.$(37,000) is the answer Explaination: 47000+20000 - 5000 -20000 -5000 = $37000

Related Questions

Navigate

• Browse (All)
• Browse #
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.