Defender: A 5 year-old tooling kit that was purchased new for $50,000 and has a current market (trade-in) value of $8000 and expected O&M costs of $8600, increasing by 1000 per year. The kit is in need of an immediate overhaul (repair) expected to cost $1000. Future market values are expected to decline by 25% annually (going forward). The kit can be used for another 7 years at most. The optimal replacement kit information is below. The new model kit will be needed indefinitely. Assume a unique minimum AECN(15%) for both kits (both the current and replacement kit). The replacement kit has N*=4 and AEC*C = 14,000

1) Find AEC*D.

a) 12,458 - 12,498

b) 12,498 - 12,538

c) 12,538 - 12,578

d) 12,578 - 12,618

e) None of the above

2) Now consider the error of keeping the defender one year longer than is cost efficient. How much more does that error cost you in present value? Hint: the first step in this multi-step problem involves using marginal analysis to identify the optimal plan. Hint #2: Next carefully sketch the cash flow diagram of the optimal plan and also the plan where you keep the defender one year longer. Then find the present value of the difference.

a) 120 - 130

b) 130 - 140

c) 140 - 150

d) 150 - 160

e) None of the above

3) P = 164,000, N=25 and S₂₅ = 17,000. Find D₁₂ using double-declining balance approach associated with the book method.

a) 5228 - 5238

b) 5238 - 5248

c) 5248 - 5258

d) 5258 - 5268

e) None of the above

4) Consider an equipment purchase of $90,000 today (during 2018) that will be put into operation in its 4th year (during 2021). The equipment is expected to be operational for 20 years. In 2024 the equipment will require an overhaul costing $40,000. Using the CCA method (50% rule applies to both equipment and overhaul) and assuming a CCAequipment rate of 40% and CCAoverhaul rate of 30%, what is the total projected CCA for 2027: CCA2027? (Rounded up/down to the nearest dollar figure)

a) 7187 - 7207

b) 7207 - 7227

c) 7227 - 7247

d) 7247 - 7267

e) None of the above