(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:

Lichty uses the total-cost approach and a discount rate of 12% in making capital budgeting decisions. Regardless of which option is chosen, rebuild or replace, at the end of four years Mr. Lichty plans to close the car wash and retire.

If the new equipment is purchased, the present value of the annual cash operating costs associated with this alternative is:

$(27,637)

$(38,874)

$(16,400)

$(17,311)

Present Equipment New Equipment   Purchase cost new $64,500         $59,000           Remaining book value $21,400           Cost to rebuild now $21,400           Major maintenance at the end of 3 years $5,700         $3,700            Annual cash operating costs $12,500         $9,100            Salvage value in 5 years $3,400         $10,200            Salvage value now $13,600        

Explanation / Answer

$(16,400)

Related Questions

Navigate

• Browse (All)
• Browse #
• Subjects

---

---

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