Question
use the pw method to select the better of the alternatives shown below. assume that the defender was installed five years ago and that its
use the pw method to select the better of the alternatives shown below. assume that the defender was installed five years ago and that its macrs(gds) property class is seven years. the after-tax MARR is 10% per year, and the effective income tax rate is 40%
Annual Expenses | Defender: Alternative A | Challenger: Alternative B |
Labor | -$300,000 | -$250,000 |
Material | -250,000 | -100,000 |
Insurance & Propertey Taxes | 4% of initial capital investment | NONE |
Maintenance | -$8,000 | NONE |
Leasing cost | NONE | -$100,000 |
Definition of Alternatives:
0Alternative A: Retain an already owne machine (defender) in service for eigh more years.
Alternative B: Sell the defender and lease a new one (challenger) for eight years.
Alternative A (additional information)
Cost of defender five years ago = -$500,000
BV now (if kept) = $111,500
Estimated market value eight years from now = $50,000
Present MV = $150,000.
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