(Ignore income taxes in this problem) Morrel University has a small shuttle bus
ID: 2350994 • Letter: #
Question
(Ignore income taxes in this problem) Morrel University has a small shuttle bus that it is poor mechanical condition The but can be either overhauled now or replaced with a new shuttle but The following data have been gathered concerning these two alternatives: The University could continue to use the present bus for the next seven years Whether the present but it used or a new bus is purchased, the bus would be traded in for another bus at the end of seven years The University uses a discount rate of and the total cost approach to net present value analysis in evaluating its investment decisions If the present bus is repaired, the present value of the salvage received on sale of the bus seven years from now is: $904 $,260 $(904) $(2,260)Explanation / Answer
the present value of the salvage = 2,000/(1.12)^7 = 904
The answer is A.
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