Morrel University Has a Small Shuttle Bus That Is in Poor

question 67

Multiple Choice

Morrel University has a small shuttle bus that is in poor mechanical condition. The bus can be either overhauled now or replaced with a new shuttle bus. The following data have been gathered concerning these two alternatives (Ignore income taxes.) : Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.The University could continue to use the present bus for the next seven years. Whether the present bus is used or a new bus is purchased, the bus would be traded in for another bus at the end of seven years. The University uses a discount rate of 12% and the total cost approach to net present value analysis.If the present bus is repaired, the present value of the annual cash operating costs associated with this alternative is closest to:

• A) $(36,500)
• B) $(16,200)
• C) $(47,200)
• D) $(54,800)

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Definitions:

Market Basket

A fixed list of items, used to track the progress of inflation in an economy or to compare costs of living.

CPI

Refers to the Consumer Price Index, a metric that calculates the weighted average price of a selection of consumer items and services including food, medical care, and transportation.

Rate of Inflation

The inflation of general prices for goods and services in an economy over a particular period of time.

CPI

A measurement known as the Consumer Price Index tracks the change in average costs for a variety of consumer goods and services, including but not limited to transportation, medical care, and food, through a weighted average formula.