Question
Esteez Construction Company has an overhead crane that has an estimated remaining life of 7 years. The crane can be sold for $14000. If the
Esteez Construction Company has an overhead crane that has an estimated remaining life of 7 years. The crane can be sold for $14000. If the crane is kept in service it must be overhauled immediately at a cost of $6000. Operating and maintenance costs will be $5000/year after the crane is overhauled. After overhauling it, the crane will have a zero salvage value at the end of the 7-year period. A new crane will cost $36000 and will last for 7 years with a $8000 salvage value at the end of that time. Operating and maintenance costs are $2500 for the new crane. Esteez uses an interest rate of 15% in evaluating investment alternatives. Should the company buy the new crane based upon annual cost analysis? Please use the cashflow approach.
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