Westland College Has a Telephone System That Is in Poor

question 50

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:
$\begin{array}{|l|r|r|}\hline \text { Purchase Cost New } & \begin{array}{r}\text { Present } \\\text { System }\end{array} & \begin{array}{r}\text { Proposed New } \\\text { System }\end{array} \\\hline \text { Accumulated Depreciation } & \$ 250,000 & \$ 300,000 \\\hline \text { Overhaul costs needed now } & \$ 240,000 & \\\hline \text { Annual Cash operating costs } & \$ 230,000 & \\\hline \text { Salvage value now } & \$ 180,000 & \$ 170,000 \\\hline \text { Salvage value at the end of eight years } & \$ 160,000 & \$ 165,000 \\\hline \text { Working capital required } & \$ 152,000 & \$ 200,000 \\\hline\end{array}$
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 overhauling the present system? (Do not round your intermediate calculations and round your final answer to the nearest whole number.)

• A) ($1,035,406).
• B) ($1,190,287).
• C) ($1,119,378).
• D) $717,225.

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