Question

The chief ranger of the state’s Department of Natural Resources is considering a new plan for fighting forest fires in the state’s forest lands. The current plan uses eight fire-control stations, which are scattered throughout the interior of the state forest. Each station has a four-person staff, whose annual compensation totals $330,000. Other costs of operating each base amount to $230,000 per year. The equipment at each base has a current salvage value of $250,000. The buildings at these interior stations have no other use. To demolish them would cost $23,000 each.

The chief ranger is considering an alternative plan, which involves four fire-control stations located on the perimeter of the state forest. Each station would require a six-person staff, with annual compensation costs of $430,000. Other operating costs would be $240,000 per base. Building each perimeter station would cost $330,000. The perimeter bases would need helicopters and other equipment costing $630,000 per station. Half of the equipment from the interior stations could be used at the perimeter stations. Therefore, only half of the equipment at the interior stations would be sold if the perimeter stations were built.

The state uses a 10 percent hurdle rate for all capital projects. The chief ranger has decided to use a 10-year time period for the analysis.

Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.)

Required:

Use the incremental-cost approach to prepare a net-present-value analysis of the chief ranger’s decision between the interior fire-control plan and the perimeter fire-control plan. (Round your "Discount factors" to 3 decimal places. Negative amounts should be indicated by a minus sign.)

Can you please show working please. I saw the exact question on cheggs but the answer is incorrect and there is now way ii could fallow it.Besides, I plug in the answer they have but it is incorrect

Answer 1

		Incremental
		0	1-10
Initial costs:
Building costs	F	-1320000
Cost of equipment	I	-2520000
Salvage value of old equipment	G	1000000
Cost of demolishing existing stations	H	-184000
Annual costs:
Compensation costs	C		920000
Other operating costs	E		880000
Total Costs		-3024000	1800000
Hurdle rate		10%	10%
Discounting factor		1	6.145
Present value		-3024000	11061000
Net Present Value		8037000

Working:

		Present	Proposed	Incremental
		(1)	(2)	(2) - (1)
Number of stations	A	8	4
Annual compensation per station	B	-330000	-430000
Total annual compensation (A x B)	C	-2640000	-1720000	920000
Other annual operating costs per station	D	-230000	-240000
Total annual operating costs (D x A )	E	-1840000	-960000	880000
Cost of building new stations (330,000 x 4)	F		-1320000	-1320000
Salvage value of existing stations (250,000 x 4)	G		1000000	1000000
Cost of demolishing existing stations (23,000 x 8)	H		-184000	-184000
Cost helicopter and other equipment (630,000 x 4)	I		-2520000	-2520000