CEMEX has a cement revolving tower that was purchased 3 years ago for $45,000.

It has been depreciated over the three years as a MACRS-GDS 5-year property. It has an

estimating remaining life of 6 years. O&M costs are $20,000 per year. Alternative A is to keep

the existing revolving tower. It has a current value of $15,000, and it will have a salvage value of

$2,000. Alternative B (MACRS-GDS 5-year property class) is to buy a new revolving tower that

will cost $65,000 and will have a salvage value of $65,000 (0.75)

t

at the end of year

t.

O&M

costs are $3,000 increasing by $1,000 per year. Alternative C is to trade in the existing revolving

machine on a "treated revolving unit" that requires vastly less O&M costs at only $2,000 per

year. It costs $75,000, and the trade-in allowance for the existing auger is $18,000. The "treated

revolving unit" will have an $18,000 salvage value after 6 years, and has a MACRS-GDS 5-year

property class. The after-tax MARR is 9%, the tax rate is 35%, and the planning horizon is 5

years. Clearly show the ATCF profile for each alternative, and using an EUAC comparison and

an

outsider cash flow approach

, decide which is the more favorable alternative.