Safari File Edit View History Bookmarks Window Help ? ? , 63%)L\' 2 ) Sat Jun 30

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Safari File Edit View History Bookmarks Window Help ? ? , 63%)L' 2 ) Sat Jun 30 5:30 PM Alex C E 11.11 points Tulsa Company is considering investing in new botting equipment and has two options: Option A has a lower inital cost but would require a significant expenditure to rebuild the machine after four years; Option B has higher maintenance costs, but also has a higher salvage value at the end of its useful life. Tulsa's cost of capital is 11 percent. The following estimates of the cash lows were developed by Tulsa's controller Option A Opton B Initial investment Annual cash inflows Annual cash outfows Costs to rebuild Salvage value Es imated useful life 320,000 150,000 0,000 120,000 454,000 160,000 5,000 24000 8 years 8 years Calculate NPV. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign. Round your "Present Values" to the nearest whole dollar amount.) A: Year Cash Flows PV factor Present Value 11% Initial Investment Annual Cash FloWB Cost to Rebuid Salvage Net PreBenk Value 1-8 n B: Year Cash Flows PV factor Present Value 11% Initial Investment Annual Cash Flows t to Rebuid 1-8 Salvage Net Present Value afari.dmg 0

Explanation / Answer

Option-A Year Cash flows PVF Present value Initial Investment 0 -320000 1.0000 -320000 Annual cash flows 1--8 80000 5.1461 411688 Cost to rebuild 4 -120000 0.6587 -79044 Salvage 8 0 0.4339 0 Net present value 12644 Option-B Year Cash flows PVF Present value Initial Investment 0 -454000 1.0000 -454000 Annual cash flows 1--8 85000 5.1461 437418.5 Cost to rebuild 4 0 0.6587 0 Salvage 8 24000 0.4339 10413.6 Net present value -6168

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