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(Ignore income taxes in this problem.) Becker Billing Systems, Inc., has an antiquated high-capacity printer that...

(Ignore income taxes in this problem.) Becker Billing Systems, Inc., has an antiquated high-capacity printer that needs to be upgraded. The system either can be overhauled or replaced with a new system. The following data have been gathered concerning these two alternatives:

Overhaul Present System

Purchase New System

Working capital required............

—

$80,000

Purchase cost when new.............

$300,000

$500,000

Accumulated depreciation..........

$220,000

—

Overhaul costs needed now........

$250,000

—

Annual cash operating costs.......

$120,000

$90,000

Salvage value now......................

$90,000

—

Salvage value in ten years..........

$30,000

$50,000


The company uses a 10% discount rate and the incremental 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. What is the net present value of the new system alternative?

** the pv for 10% / 10 years is .386 and the annuity is 6.145

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ekkarill92 answered 2 years ago
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