Lichty uses the total-cost approach and a discount rate of

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(Ignore income taxes in this problem.) 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	$94,500	$83,000
Remaining book value	$23,800
Cost to rebuild now	$23,800
Major maintenance at the end of 3 years	$6,900	$4,900
Annual cash operating costs	$18,500	$12,700
Salvage value in 4 years	$5,800	$17,400
Salvage value now	$23,200

Lichty uses the total-cost approach and a discount rate of 12% in making capital budgeting decisions. Regardless of which option is chosen, rebuild or replace, at the end of four 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: (Round your 'PV factors' to three decimal places. Round your other intermediate calculations and final answer to the nearest whole dollar.) (Use exhibit11b-1, exhibit11b-2)

Reference no: EM13571559

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