“Carlson Manufacturing has some equipment that needs to be rebuilt or replaced. The following information has been gathered relative to this decision: Present Equipment New Equipment Purchase cost new $50,000 $48,000 Remaining book value $30,000 – Cost to rebuild now $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 – Carlson uses the total-cost approach and a discount rate of 12% in making capital budgeting decisions. Regardless of which option is chosen, rebuild or replace, at the end of five years Carlson Manufacturing plans to close its domestic manufacturing operations and to move these operations to foreign countries.107. If the new equipment is purchased, the present value of the annual cash operating costs associated with this alternative is: a. $(28,840). b. $(19,160). c. $(14,420). d. $(36,050).”,”1The present value of the annual cash operating expense = 8,000 x 3.605 = $28
840 cash outflow”