(Ignore income taxes in this problem.) Lichty Car Wash has some equipment that n

Question

(Ignore income taxes in this problem.) Lichty Car Wash has some equipment that needs to be rebuilt or replaced. The following information has been gathered concerning this decision:



Lichty uses the total-cost approach and a discount rate of 10% in making capital budgeting decisions. Regardless of which option is chosen, rebuild or replace, at the end of five years Mr. Lichty plans to close the car wash and retire.

If the new equipment is purchased, the present value of all cash flows that occur now is:

(Ignore income taxes in this problem.) Lichty Car Wash has some equipment that needs to be rebuilt or replaced. The following information has been gathered concerning this decision: Lichty uses the total-cost approach and a discount rate of 10% in making capital budgeting decisions. Regardless of which option is chosen, rebuild or replace, at the end of five years Mr. Lichty plans to close the car wash and retire. If the new equipment is purchased, the present value of all cash flows that occur now is:

Explanation / Answer

The present value of all cash flows that occur now is: $47,000 + $20,000 - $5,000 + $8,000= $ 70,000

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