Reference no: EM131774682
Lichty Car Wash has some equipment that needs to be rebuilt or replaced. The following information has been gathered concerning this decision:
Present Equipment New Equipment
Purchase cost new $82,000 $73,000
Remaining book value $22,800
Cost to rebuild now $22,800
Major maintenance at the end of 3 years $6,400 $4,400
Annual cash operating costs $16,000 $11,200
Salvage value in 6 years $4,800 $14,400
Salvage value now $19,200
Lichty uses the total-cost approach and a discount rate of 9% in making capital budgeting decisions. Regardless of which option is chosen, rebuild or replace, at the end of six years Mr. Lichty plans to close the car wash and retire.
If the new equipment is purchased, the present value of the annual cash operating costs associated with this alternative is
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