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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