(Ignore income taxes in this problem.) Your Company has a telephone system that is in poor condition. The system must be either overhauled or replaced with a new system. The following data have been gathered concerning these two alternatives:
Present System
Proposed New System
Purchase cost when new
$100,000
$110,000
Accumulated depreciation
90,000
Overhaul cost needed now
80,000
Working capital required
50,000
Annual cash operating costs
30,000
20,000
Salvage value now of old system
10,000
Salvage value in 8 years
2,000
15,000
Your Company uses a 12% discount rate and the total cost approach to capital budgeting analysis. Both alternatives are expected to have a useful life of eight years. What is the net present value of the new system alternative? Enter your answer without dollar signs. If the NPV is negative enter with a minus sign in front.
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