17) Allen College has a telephone system that is in poor condition. The system c

ID: 2570555 • Letter: 1

Question

17) Allen College has a telephone system that is in poor condition. The system can be either overhauled or replaced with a new system. The following data have been gathered concerning these two alternatives:

Present
System

Proposed
New System

Purchase cost when new

$100,000

$140,000

Accumulated depreciation

$90,000

Overhaul cost needed now

$80,000

Annual cash operating costs

$30,000

$20,000

Salvage value now

$10,000

Salvage value in 8 years

$2,000

$15,000

Working capital required

$50,000

Allen College uses a 12% discount rate and the total cost approach to net present value analysis. Both alternatives are expected to have a useful life of eight years.

Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.

The net present value of the alternative of replacing the present system with the proposed new system is closest to:
rev: 01_27_2016_QC_CS-39173, 11_10_2016_QC_CS-69517

A) ($283,300)

B) ($233,300)

C) ($263,100)

D) ($273,100)