(a) Should the defender be replaced now if the mills MARR and marginal tax rate ar 15% and 40%, respectively?

(b) If the defender will eventually be replaced by the current challenger, when is the optimal time to replace?

In 2 x 4 and 2 x 6 lumber production, significant amounts of wood are present in sideboards produced after the initial cutting of logs. Instead ofprocessing the sideboards into ood chips for the paper mill, an "edger is used to reclaim additional lumber, thus resulting in savings for the company. An edger is capable of reclaiming lumber by any of the following three methods [1) removing rough edges, (2) splitting large sideboards, and (3) salvaging 2 x 4 lumber from low-quality 4x4 boards. Union Camp Company's engineers reduction in production costs could be achieved simply by replacing the original edger machine with a newer laser-controlled model. 47,200 Conveyor modification14,500 16,500 $135,400 Electrical (wiring) Sub total Construction management 20,000 have discovered that a significant Total Useful life of new edger 10 years Salvage value Building (tear doun) Old Edger: The old edger was placed in service 12 years ago and is fully depreciated. Any machine scrap value would offset the removal cost of the equipment. No market exists for this obsolete equipment The old edger needs two operators. During the cutting operation, the operator makes edger settings based on his/her ownjudgment. The operator has no means of determining exactly what dimension of lumber could be recovered firom a given s proper setting to recover the highest grade of lumber. Furthermore, the old edger is not capable of salvaging good-quality 2 x4s from poor-quality 4x4s. The defender can continue in service for another 5 years with proper maintenance. 10% ofthe original cost 35,000 Anmual O&M costs reciation Methods 39-year sideboard and must guess at the Equipmant and 7-year Twenty-five percent oftotal mill volume passed through the edger. A 12% yield improvement is expected to be realized on this production, which will result in an improvement of total mill volume of025)(0.12)-3%, or an annual savings of $57,895 Current market value 0 Current book value Anmual maintenance 2,500 inyear 1 increasing at a coet rate of 15% each (a) Should the defender be replaced now if the mill's MARR and marginal tax rate a 15% and 40%, respectively? (b) Ifthe defender will eventually be replaced by the current challenger, when is the optimal time to replace? year over the previous year's Anmual oparating costs New Laser-Controlled Edger: The new edger has numerous advantages over its defender. These advantages include laser beams that indicate where cuts should be made to obtain the maximum yield by the edger. The new edger requires a single operator, and labor savings will be reflected in lower operating and maintenance costs of $35,000 a year Estimated Cost $35,700 21.500 Equipment Installation In 2 x 4 and 2 x 6 lumber production, significant amounts of wood are present in sideboards produced after the initial cutting of logs. Instead ofprocessing the sideboards into ood chips for the paper mill, an "edger is used to reclaim additional lumber, thus resulting in savings for the company. An edger is capable of reclaiming lumber by any of the following three methods [1) removing rough edges, (2) splitting large sideboards, and (3) salvaging 2 x 4 lumber from low-quality 4x4 boards. Union Camp Company's engineers reduction in production costs could be achieved simply by replacing the original edger machine with a newer laser-controlled model. 47,200 Conveyor modification14,500 16,500 $135,400 Electrical (wiring) Sub total Construction management 20,000 have discovered that a significant Total Useful life of new edger 10 years Salvage value Building (tear doun) Old Edger: The old edger was placed in service 12 years ago and is fully depreciated. Any machine scrap value would offset the removal cost of the equipment. No market exists for this obsolete equipment The old edger needs two operators. During the cutting operation, the operator makes edger settings based on his/her ownjudgment. The operator has no means of determining exactly what dimension of lumber could be recovered firom a given s proper setting to recover the highest grade of lumber. Furthermore, the old edger is not capable of salvaging good-quality 2 x4s from poor-quality 4x4s. The defender can continue in service for another 5 years with proper maintenance. 10% ofthe original cost 35,000 Anmual O&M costs reciation Methods 39-year sideboard and must guess at the Equipmant and 7-year Twenty-five percent oftotal mill volume passed through the edger. A 12% yield improvement is expected to be realized on this production, which will result in an improvement of total mill volume of025)(0.12)-3%, or an annual savings of $57,895 Current market value 0 Current book value Anmual maintenance 2,500 inyear 1 increasing at a coet rate of 15% each (a) Should the defender be replaced now if the mill's MARR and marginal tax rate a 15% and 40%, respectively? (b) Ifthe defender will eventually be replaced by the current challenger, when is the optimal time to replace? year over the previous year's Anmual oparating costs New Laser-Controlled Edger: The new edger has numerous advantages over its defender. These advantages include laser beams that indicate where cuts should be made to obtain the maximum yield by the edger. The new edger requires a single operator, and labor savings will be reflected in lower operating and maintenance costs of $35,000 a year Estimated Cost $35,700 21.500 Equipment Installation