UR Company Is Considering Rebuilding and Selling Used Alternators for Automobiles

question 150

Multiple Choice

UR Company is considering rebuilding and selling used alternators for automobiles. The company estimates that the net operating cash flows (sales minus cash operating expenses) arising from the rebuilding and sale of the used alternators would be as follows (numbers in parentheses indicate an outflow) :
$\begin{array}{|l|r|}\hline \text { Year } 1-10 & \$ 90,000 \\\hline \text { Year } 11 & (\$ 20,000) \\\hline \text { Year } 12 & \$ 100,000 \\\hline\end{array}$
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 $10 \%$ . (Ignore income taxes in this problem.)
- What is the present value of the net operating cash flows (sales minus cash operating expenses) arising from the rebuilding and sale of the alternators,rounded to the nearest dollar? (Do not round your intermediate calculations.)

• A) $577,864.
• B) $582,735.
• C) $591,884.
• D) $596,735.

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Definitions:

Spending Variance

A financial metric that compares the actual amount spent to the budgeted or planned amount in a certain period.

Press Runs

A term often used in printing or manufacturing indicating the number of times a machine produces a particular set of print materials in a single operation.

Book Set-Ups

The initial configuration and adjustments made in accounting records or financial statements preparation.

Wages And Salaries

Compensation paid to employees for their services, with wages often calculated on an hourly basis and salaries on an annual basis.