is expected to be $1800 the last year an the second year. As an alternative, a new car can be purchased for $22,000 and be used for 4 years, after which it will be sold for $8,000. The new car will be under warranty the first 4 years, and no extra mainte- nance cost will be incurred during those years. If the MARR is 15% per year, what is the better option? Contributed by Hamed Kashani, Saeid Sadri, and Baabak Ashuri, Georgia Institute of Technology 13-47 The Quick Manufacturing Company, a large profitable corporation, may replace a production machine tool. A new machine would cost $37,000, have an 8-year useful life, and have no salvage value. For tax purposes, 3-year MACRS depreci- ation would be used. The existing machine tool cost $40,000 4 years ago, and it has been completely depreciated. The tool could be sold now to a used equipment dealer for $10,000 or be kept in ser- vice for another 8 years. It would then have no salvage value. The new machine tool would save about $9000 per year in operating costs compared to the existing machine. Assume a 20% combined state and federal tax rate. Compute the before-tax rate of return on the replacement proposal of installing the new machine rather than keeping the existing machine. m he and After-Tax Replacement 13-48 Fifteen years ago the Acme Manufacturing Company hought a propane-powered forklift truck for $4800. use