Reference no: EM13567245

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:

	Present System	New System
Purchase cost when new	$150,000	$200,000
Accumulated depreciation	$140,000
Overhaul costs needed now	$130,000
Annual cash operating costs	$80,000	$70,000
Salvage value now	$60,000
Salvage value in 8 years	$52,000	$65,000
Working capital required		$100,000

Westland College uses a 10% discount rate and the total cost approach to capital budgeting analysis. The working capital required under the new system would be released for use elsewhere at the conclusion of the project. Both alternatives are expected to have a useful life of eight years.

1. The net present value of overhauling the present system is:

A) $(321,084)

B) $(532,516)

C) $(560,536)

D) $(592,516)

2. The net present value of the new system alternative is:

A) $(483,095)

B) $(583,095)

C) $(596,395)

D) $(536,395)