Question
Present Equipment New Eqipment Purchase Cost New $50,000 $48,000 Remaning Book Value $30,000 -- Cost To rebuild new $25,000 -- major maintenance at the end
| Present Equipment | New Eqipment | |
| Purchase Cost New | $50,000 | $48,000 |
| Remaning Book Value | $30,000 | -- |
| Cost To rebuild new | $25,000 | -- |
| major maintenance at the end of 3 years | $8,000 | $5,000 |
| annual cash operating costs | $10,000 | $8,000 |
| salvage value at the end of 5 years | $3,000 | $7,000 |
| salvage value now | $9,000 | -- |
(Ignore income taxes in this problem.) Carlson Manufacturing has some equipment that needs to be rebuilt or replaced. The following information has been gathered relative to this decision: Carlson uses the total cost approach to net present value analysis and a discount rate of 12%. Regardless of which option is chosen, rebuild or replace, at the end of five years Carlson Manufacturing will have no future use for the equipment.If the equipment is rebuilt, the present value of the cash flow that occur now is A.$(23,000) B.$(16,000) C.$55,000) D.$(25,000)
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Tobacco Industry IRS Audit Techniques Guide
Authors: Internal Revenue Service
1st Edition
1304114910, 978-1304114914
