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Problem 16-41 Net Present Value; Total-Cost Approach (Section 1) (LO 16-1, 16-3) 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 $240,000. Other costs of operating each base amount to $140,000 per year. The equipment at each base has a current salvage value of $160,000. The buildings at these interior stations have no other use. To demolish them would cost $14,000 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 $340,000. Other operating costs would be $150,000 per base. Building each perimeter station would cost $240,000. The perimeter bases would need helicopters and other equipment costing $540,000 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. Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) Required: 1. Use the total-cost approach to prepare a net-present-value analysis of the chief ranger's two fire-control plans. (Assume that the Interior fire-control stations will be demolished if the perimeter plan is selected. The chief ranger has decided to use a 10-year time period for the analysis.) (Round your "Discount factors" to 3 decimal places. Negative amounts should be indicated by a minus sign.) NPV of Interior Fire-Control Stations NPV of Perimeter Fire-Control Stations Difference in NPV Costs Special People Industries (SPI) is a nonprofit organization that employs only people with physical or mental disabilities. One of the organization's activities is to make cookies for its snack food store. Several years ago, Special People Industries purchased a special cookie-cutting machine. As of December 31, 20x0, this machine will have been used for three years. Management is considering the purchase of a newer, more efficient machine. If purchased, the new machine would be acquired on December 31, 20x0. Management expects to sell 300,000 dozen cookies in each of the next six years. The selling price of the cookies is expected to average $1.15 per dozen. Special People Industries has two options: continue to operate the old machine or sell the old machine and purchase the new machine. No trade-in was offered by the seller of the new machine. The following information has been assembled to help management decide which option is more desirable. Old Machine $80,000 6 years $ 0.38 $21,000 New Machine $120,000 6 years Original cost of machine at acquisition Renaining useful life as of December 31, 20x0 Expected annual cash operating expenses Variable cost per dozen Total fixed costs Estimated cash value of machines December 31, 20x8 December 31, 20x6 $ 0.29 $ 11,000 $40,000 $ 7,000 $120,000 $ 20,000 Assume that all operating revenues and expenses occur at the end of the year. Use Aprendix A for your reference. (Use appropriate factor(s) from the tables provided) Required: 1-a. Use the net-present-value method to compute the net-present-value for the old machine and the new machine. The organization's hurdle rate is 16 percent 1-6. Determine whether Special People Industries should retain the old machine or acquire the new machine Complete this question by entering your answers in the tabs below. Reg 1A Reg 11 Estimated cash value of machines: December 31, 20x December 31, 2006 $21,000 $40,000 $ 7,000 $ 11,000 $120,000 $ 20,000 Assume that all operating revenues and expenses occur at the end of the year. Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided) Required: 1-a. Use the net-present-value method to compute the net-present-value for the old machine and the new machine. The organization's hurdle rate is 16 percent. 1-b. Determine whether Special People Industries should retain the old machine or acquire the new machine. Complete this question by entering your answers in the tabs below. Reg 1A Req 18 Use the net-present-value method to compute the net-present-value for the old machine and the new machine. The organization's hurdle rate is 16 percent. (Negative amounts should be indicated by minus sign.) Net Present Value Old machine New machine Reg 10 >