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Community Hospital has an auxiliary generator that is used when power failures occur. The generator is worn out and must be either overhauled or replaced
Community Hospital has an auxiliary generator that is used when power failures occur. The generator is worn out and must be either overhauled or replaced with a new generator. The hospital has assembled the following information New Purchase cost Remaining book value Overhaul needed now Annual cash operating costs Salvage value-now Salvage value-nine years from now Present Generator Generator $25,000 S31,000 $18,000 $17,000 $16,000 $11,000 $13,000 $12,000 $24,000 If the company keeps and overhauls its present generator, then the generator will be usable for nine more years. If a new generator is purchased, it will be used for nine years, after which it will be replaced The new generator would be diesel-powered, resulting in a substantial reduction in annual operating costs as shown above The hospital computes depreciation on a straight-line basis. All equipment purchases are evaluated using a 11% discount rate. (Ignore income taxes.) Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables. Required 1a. Detemine the net present value using the total-cost approach. (Use the appropriate table to determine the discount factor(s) and round final answers to the nearest dollar amount.) Net Present Value Purchase new generator Overhaul and keep old generator
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