Allen Construction purchased a crane 6 years ago for $130,000 and depreciated it as MACRS-GDS 5-year property. They need a crane of this capacity for the next 5 years. Normal operation costs $35,000 per year. The current crane will have no salvage value at the end of 5 more years. Allen can trade in the current crane for its market value of $40,000 toward the purchase of a new one that costs $150,000. The new crane will cost only $8,000 per year under normal operating conditions and will have a salvage value of $55,000 after 5 years. If the after-tax MARR is 12 percent, the tax rate is 40 percent, and the planning horizon is 5 years, determine whether to keep the existing crane or buy the new crane.

a. Use the cash flow approach (insider's viewpoint approach). (11.2.2)

b. Use the opportunity cost approach (outsider's viewpoint approach). (11.3.2)

c. Use the cash flow approach (insider's viewpoint approach), except note that a Section 1031 like-kind property exchange is to be used. The equipment replaced will continue to be replaced by like-kind investments in the United States indefinitely. (11.4)