Westland College Has a Telephone System That Is in Poor

question 36

Multiple Choice

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



Westland College uses a 10% discount rate and the total - cost approach to capital budgeting analysis. Both alternatives are expected to have a useful life of eight years. (Ignore income taxes in this problem.)
-What is the net present value of the alternative of purchasing the new system?

• A) ($1,236,495).
• B) ($1,169,895).
• C) ($1,076,495).
• D) ($969,895).

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Definitions:

Diversification

The process of allocating investments among various financial assets to reduce risk and improve potential returns.

Diversifiable Risk

A risk that can be reduced or mitigated through the diversification of investments in a portfolio.

Government Regulation

Laws and rules established by governmental agencies aimed at controlling the way businesses can operate within the economy.

Systematic Risk

A hazard inherent to the entire market or a market segment, which diversification cannot diminish.