San Diego State University Operations And Supply Chain Management Assignment Help - Salvaga value

Question - Total Cost Approach

Present New
Generator Generator
Purchase Cost 16,000 20,000
Remaining Book Value 9,000
Overhaul Needed Now 8,000
Annual Cash Operating Cost 12,500 7,500
Salvage Value-Now 4,000
Salvage Value-8years 3,000 6,000
All equipment purchases are elavated at a 16 % Discount Rate

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.

NPV in favor of the new generator:14,635. How?

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