Required Information

The Mendoza Company discussed in the chapter is now considering replacing a plece of equipment

that the company uses to monitor the integrity of metal plpes used for deep$-$sea drilling purposes.

The company's pre$-$tax WACC $($dlscount rate$)$ Is estimated as $10\%.$ The following data are pertinent to

the question you've been asked to analyze:

Requlred:

What is the maximum amount of annual varlable operating expenses, pretax, that would make this an attractive

Investment from a present$-$value standpoint? In answering this question, use the approprlate PV factor$($s$)$ from Appendix

C$.$ Table $1$ and the approprlate PV annulty factor from Appendix C$.$ Table $2.($Round your answer to the nearest whole

dollar amount.$)$

Assume now that the company expects, over the coming $6$ years, to be subject to a combined Income tax rate of

$35\%,$ Including any galn$/$loss realized on the sale of the existing equipment. Assume that the current net book value of

the exIsting asset is $$84,000$ and that the after$-$tax WACC $($discount rate$)$ for Mendoza is $8\%.$ Finally, assume that the

company will use straight$-$IIne depreclation, with no salvage value, for Income tax purposes. In this situation, what is the

maximum amount of varlable operating costs $($on both a pre$-$tax and on an after$-$tax basis$)$ that can be Incurred in order

to make the proposed purchase attractive in a present$-$value sense? In answering this question, use the approprlate PV

annulty factor from Appendix C$.$ Table $2.($Round your answers to the nearest whole dollar amount.$)$