Polaris Industries wishes to purchase a multiple-use in-plant road test simulator that can be used for ATVs,
Question:
Polaris Industries wishes to purchase a multiple-use in-plant ‘‘road test’’ simulator that can be used for ATVs, motorcycles, and snowmobiles. This is for research and experimentation and is considered MACRS-GDS 5-year property (remember the half-year convention). The simulator takes digital data from relatively short drives on a desired surface—from smooth to exceptionally harsh—and simulates the ride over and over while the vehicle is mounted to a test stand under load. It can run continuously if desired and provides opportunities to redesign areas of poor reliability. It costs \($128,000,\) and its market value decreases by 30 percent each year. Operating costs are modest; however, maintenance costs can be significant due to the rugged use. O & Min the first year is expected to be \($10,000,\) increasing by 25 percent each subsequent year. Polaris Industries is in the 40 percent tax bracket, and their after-tax MARR is 9 percent. Determine the after-tax optimum replacement interval. Do not consider a Section 1031 exchange. If the salvage value differs from the book value when replacement occurs, the difference is taxed at the normal income tax rate.
Step by Step Answer:
Principles Of Engineering Economic Analysis
ISBN: 9781118163832
6th Edition
Authors: John A. White, Kenneth E. Case, David B. Pratt