Reference: 10-07
UR Company Is Considering Rebuilding and Selling Used

question 74

Multiple Choice

Reference: 10-07
UR Company is considering rebuilding and selling used alternators for automobiles. The company estimates that the net operating cash flows (sales less cash operating expenses) arising from the rebuilding and sale of the used alternators would be as follows (numbers in parentheses indicate an outflow) : $$\begin{array} { | l | l | } \hline \text { Years } 1 - 10 & \$ 90,000 \\\hline \text { Year } 11 & \$ ( 20,000 ) \\\hline \text { Year } 12 & \$ 100,000 \\\hline\end{array}$$ In addition to the above net operating cash flows, UR Company would purchase production equipment costing
$200,000 now to use in the rebuilding of the alternators. The equipment would have a 12-year life and a $15,000 salvage value. The company's discount rate is 10%.
-The present value of the net operating cash flows (sales less cash operating expenses) arising from the rebuilding and sale of the alternators (rounded to the nearest dollar) is:

• A)$577,950.
• B)$596,735.
• C)$582,735.
• D)$591,950.

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Definitions:

Algebraic Expression

An expression built from constants, variables, and a finite number of algebraic operations (e.g., addition, subtraction, multiplication, and division).

Algebraic Expression

A mathematical phrase that can contain ordinary numbers, variables (like x or y), and operators (like add, subtract, multiply, and divide).

Distributive Property

The distributive property is a basic algebraic rule stating that \(a(b + c) = ab + ac\), allowing for multiplication to be distributed over addition or subtraction.

Annual Sales

The total revenue generated from goods or services sold by a business in one year.