The company uses a 10% discount rate and the total-cost approach to capital budgeting analysis. The working capital required under the new system would be released for use elsewhere at the conclusion of the project. Both alternatives are expected to have a useful life of ten years.1. The net present value of the overhaul alternative (rounded to the nearest hundred pesos) is:P(750,300)P(987,400)P(725,800)P(975,800) 2. The net present value of the new system alternative (rounded to the nearest hundred pesos) is:P(552,900)P(758,400)P(862,900)P(987,400) (Ignore income taxes in this problem.) Citrus Billing Systems, Ic., has an antiquated high-capacity printer that needs to be upgraded. The system either can be overhauled or replacedwith a new system. The following data have been gathered concerning these two alternatives:Overhaul Present Purchase NewSystemP300,000P220,000P250,000P120,000P90,000P30,000SystemP400,000Purchase cost when newAccumulated depreciation.Overhaul costs needed nowAnnual cash operating costsSalvage value nowSalvage value in ten yearsWorking capital required..P90,000P80,000P50,000

Capital budgeting entails selecting projects that increase a company's worth. The capital budgeting…

Answered: The company uses a 10% discount rate…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The company uses a 10% discount rate and the total-cost approach to capital budgeting analysis. The working capital required under the new system would be released for use elsewhere at the conclusion of the project. Both alternatives are expected to have a useful life of ten years.

1. The net present value of the overhaul alternative (rounded to the nearest hundred pesos) is:

P(750,300)
P(987,400)
P(725,800)
P(975,800)

2. The net present value of the new system alternative (rounded to the nearest hundred pesos) is:

P(552,900)
P(758,400)
P(862,900)
P(987,400)

(Ignore income taxes in this problem.) Citrus Billing Systems, Ic., has an antiquated high-
capacity printer that needs to be upgraded. The system either can be overhauled or replaced
with a new system. The following data have been gathered concerning these two alternatives:
Overhaul Present Purchase New
System
P300,000
P220,000
P250,000
P120,000
P90,000
P30,000
System
P400,000
Purchase cost when new
Accumulated depreciation.
Overhaul costs needed now
Annual cash operating costs
Salvage value now
Salvage value in ten years
Working capital required..
P90,000
P80,000
P50,000

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