Total Cost Approach If the company keeps and overhauls its present generator, th
ID: 2371421 • Letter: T
Question
Total Cost Approach
If the company keeps and overhauls its present generator, then the generator will be usable for eight more years. If a new generator is purchased, it will be used for eight years, after which it will be replaced.
NPV in favor of the new generator:14,635. How?
Present New Generator Generator Purchase Cost 16,000 20,000 Remaining Book Value 9,000 Overhaul Needed Now 8,000 Annual Cash Operating Cost 12,500 7,500 Salvage Value-Now 4,000 Salvage Value-8years 3,000 6,000 All equipment purchases are elavated at a 16 % Discount RateExplanation / Answer
that is what i told you after comparison ur old generator is having book value 9000 and it will take 8000 for overhauling so it comes to 17000 which is more than its original price and after that as old generator already have completed much of its life so after the whole duration you are standing with less than 3000 which is ur loss actually....and in case of new you can consume the whole life of it no costs and salvage value 6000 so it is better.NOW RATE ME PLZ THNZ