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The present net salvage value of an existing water pump is estimated to be $10,000. Its annual operating cost is $2,000. It will be retained for a while, and eventually be replaced by a new pump whose first cost, life, salvage value, and operating costs are $12,000, 6 years, $3,000, and $1,500 per year, respectively. a) What are the annual depreciations and book values of the existing water pump given that Alternate MACRS (straight line depreciation with half year convention) is used? The existing pump is considered to be a 4-year property. The existing pump's salvage value at the end of the MACRS depreciation period (i.e., at the end of the 5th year) is $4,000 and is to be considered in depreciation calculations. b) When should the existing pump be replaced by the new pump? Should it be replaced now, or at the end of year 1, or 2, or 3, or 4, or 5? The existing pump's salvage values at the end of years 1, 2, 3, and 4 are the book values you calculated in (a). Use the outsider viewpoint method and a MARR of 12%.