Explore BrainMass

Explore BrainMass

    Present value of the salvage value

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Question 28: (2 points)
    (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:

    Present Bus New Bus
    Purchase cost new $30,000 $41,500
    Remaining net book value $19,000 -
    Major repair needed now $8,700 -
    Annual cash operating costs $36,000 $5,000
    Salvage value now $6,100 -
    Trade-in value in eight years $2,900 $7,900

    The University could continue to use the present bus for the next eight 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 eight years. The University uses a discount rate of 9% and the total cost approach to net present value analysis in evaluating its investment decisions.

    If the present bus is repaired, the present value of the salvage received on sale of the bus eight years from now is:

    $(14,004)
    $14,004
    $(1,456)
    $1,456

    © BrainMass Inc. brainmass.com June 3, 2020, 10:10 pm ad1c9bdddf
    https://brainmass.com/business/capital-budgeting/present-value-of-the-salvage-value-218653

    Attachments

    Solution Summary

    The solution explains how to calculate the present value of the salvage value

    $2.19

    ADVERTISEMENT