Hydrochloric acid, which fumes at room temperatures, creates a very corrosive work environment, causing steel tools to

Question:

Hydrochloric acid, which fumes at room temperatures, creates a very corrosive work environment, causing steel tools to rust and equipment to fail prematurely. A distillation system purchased 4 years ago for $80,000 can be used for only 2 more years, at which time it will be scrapped with no value. Its operating cost is $75,000 per year. A more corrosion-resistant challenger will cost $220,000 with an operating cost of $49,000 per year. It is expected to have a $30,000 salvage value after its 6-year ESL. At an interest rate of 10% per year, what minimum replacement value now for the present system will render the challenger attractive?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...