Carlson Manufacturing has some equipment that needs to be rebuilt or replaced. The following information has been gathered relative to this decision:

current equipment new equipment

purchase cost new 50,000 48,000

remaining book value 30,000 0

cost to rebuild now 25,000 0

major maintenance at the

end of 3 years 8,000 5,000

annual cost operating 10,000 8,000

Salvage value at the end

of 5 years 3,000 7,000

Salvage value now 9,000 0

Carlson uses the total cost approach to net present value analysis and a discount rate of 12%. Regardless of which option is chosen, rebuild or replace, at the end of five years Carlson Manufacturing will have no future use for the equipment.

If the new equipment is purchased, the present value of the cash flows that occur now is:

(a) ($48,000) (b) ($39,000) (c) ($41,000) (d) ($37,000)