Present Equipment New Equipment
Purchase cost new 47000 45000
Remaining book value 20000 none
Cost to rebuild now 20000 none
Major maintenance at the end of 3 year 5000 3000
Annual cash operating cost 9000 7000
Salvage value in 5 years 2000 6000
Salvage value now 8000 none 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: a. $(45000) b. $(39000) c. $(37000) d. $(34000)