Nuclear safety devices installed several years ago have been depreciated from a first cost of $200,000 to
Question:
Nuclear safety devices installed several years ago have been depreciated from a first cost of $200,000 to zero using MACRS. The devices can be sold on the used equipment market for an estimated $15,000. Or they can be retained in service for 5 more years with a $9000 upgrade now and an AOC of $6000 per year. The upgrade investment will be depreciated over 3 years with no salvage value. The challenger is a replacement with newer technology at a first cost of $40,000, n = 5 years, and S = 0. The new units will have operating expenses of $7000 per year.
(a) Use a 5-year study period, an effective tax rate of 40%, an after-tax MARR of 12% per year, and an assumption of classical straight line depreciation (no half-year convention) to perform an after-tax replacement study.
(b) If the challenger is known to be salable after 5 years for an amount between $2000 and $4000, will the challenger AW value become more or less costly? Why?
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... MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...
Step by Step Answer:
a Study period is set at 5 years The only option is the defender for 5 years and the challenger for ...View the full answer
