Problem 13-25 Net Present Value; Total and Incremental Approaches [L01] Eastbay 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 Present Generator Generator Purchase cost new $16,000 $20,000 9,000 Remaining book value 8,000 Overhaul needed now $12,500 7,500 Annual cash operating costs 4,000 Salvage value-now Salvage value-eight years from now 3,000 6,000 If the company keeps and overhauls its present generator, then the generator will be usable for eight more years. If a new generator is purchased, it will be used for eight years, after which it will be replaced The new generator would be diesel-powered, resulting in a substantial reduction in annual operating costs, shown above. The hospital computes depreciation on a straight-line basis. All equipment purchases are evaluated using a 16% discount rate. (Ignore income taxes.) Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables