(Ignore income taxes in this problem.) Morrel University has a small shuttle bus that is in poor mechanical condition. The bus can be either overhauled now or replaced with a new shuttle bus. The following data have been gathered concerning these two alternatives:
The University could continue to use the present bus for the next seven years. Whether the present bus is used or a new bus is purchased, the bus would be traded in for another bus at the end of seven years. The University uses a discount rate of 12% and the total cost approach to net present value analysis.
-If the new bus is purchased,the present value of the annual cash operating costs associated with this alternative is closest to:

Question

(Ignore income taxes in this problem.) Morrel University has a small shuttle bus that is in poor mechanical condition. The bus can be either overhauled now or replaced with a new shuttle bus. The following data have been gathered concerning these two alternatives:
  The University could continue to use the present bus for the next seven years. Whether the present bus is used or a new bus is purchased, the bus would be traded in for another bus at the end of seven years. The University uses a discount rate of 12% and the total cost approach to net present value analysis.
-If the new bus is purchased,the present value of the annual cash operating costs associated with this alternative is closest to:

Quizplus · Accepted Answer

Present value = Cash flow × PV Factor
= $(8,000) × 4.564 = $(36,512)

(Ignore Income Taxes in This Problem