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