PLEASE READ THOROUGHLY, ONLY HAVE A QUESTION ABOUT A VALUE

Question:

Harris Ferry Company provides a ferry service across Harris Harbour. One of its ferryboats is in poor condition. This ferry can be renovated at an immediate cost of $200,000. Further repairs and an overhaul of the motor will be needed 5 years from now at a cost of $80,000. The ferry will be usable for 10 more years if this work is done. At the end of 10 years, the ferry will have to be scrapped at a salvage value of approximately $60,000. The scrap value of the ferry right now is $70,000. It will cost $300,000 each year to operate the ferry, and revenues will total $400,000 annually. As an alternative, Harris Ferry Company can purchase a new ferryboat at a cost of $360,000. The new ferry will have a life of 10 years, but it will require repairs at the end of 5 years estimated to cost $30,000. At the end of 10 years, it is estimated that the ferry will have a scrap value of $60,000. It will cost $210,000 each year to operate the ferry, and revenues will total $400,000 annually. Harris Ferry Company requires a return of at least 14% before taxes on all investment projects.

PLEASE HELP: CONFUSED ON WHERE THEY ARE GETTING THE VALUE FOR SALVAGE OF THE NEW FERRY....60 000

So i read the qquestion and i have no idea where the 60 000 is coming from. I know scrap value is different than salvage value and you usually if it says scrap i dont include it so i feel like 60 000 is not coming from this part: At the end of 10 years, it is estimated that the ferry will have a scrap value of $60,000.

so please explain where that value is coming from and if you can also explain why we include the salvage of the old ferry. Also if you can kindly explain why we dont include scrap value for NPV would be great!

This is my first time doing a question where i am comparing two investments.

Please explain in detail. Thank you

EXHIBIT 13-5 The Total-Cost Approach to Project Selection New Old Ferry Ferry Annual revenue . . . . $400,000 $400,000 Annual cash operating costs . 210,000 300,000 Net annual cash inflows . $190,000 $100,000 Amount of Present Value Item Year(s) Cash Flow of Cash Flows* Buy the new ferry: Initial investment .. .... Now $(360,000) $(360,000) Repairs in five years. . . 5 (30,000) (15,581) Net annual cash inflows. . 1-10 190,000 991,062 Salvage of the old ferry Now 70,000 70,000 Salvage of the new ferry 10 60,000 16,185 Net present value . . 701,666 Keep the old ferry: Initial repairs . ..... Now $(200,000) (200,000) Repairs in five years. . . . 5 (80,000) (41,549) Net annual cash inflows . . 1-10 100,000 521,612 Salvage of the old ferry . 10 60,000 16,185 Net present value . ..... 296,248 Net present value in favour of buying the new ferry . .. $ 405,418 *Calculated using the NPV formula of Microsoft Excel and a required rate of return of 14%