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Allen College has a telephone system that is in poor condition. The system can be...

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Accounting

Allen College has a telephone system that is in poor condition. The system can be either overhauled or replaced with a new system. The following data have been gathered concerning these two alternatives:

Present System Proposed New System
Purchase cost when new $100,000 $150,000
Accumulated depreciation $90,000 -
Overhaul cost needed now $80,000 -
Annual cash operating costs $30,000 $20,000
Salvage value now $10,000 -
Salvage value in 8 years $2,000 $15,000
Working capital required - $50,000

Allen College uses a 12% discount rate and the total cost approach to net present value analysis. Both alternatives are expected to have a useful life of eight years. The net present value of the alternative of overhauling the present system is closest to:

($232,272)

($108,000)

($238,232)

($228,232)

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