2. The following maintenance alteratives are considered for a new assembly line that has an acquisition cost of $250,000. Each has distinct service life expectancies and corresponding probabilities. Determine the maintenance regime most likely to yield an annualized overall cost less than $32k, given an annual rate of 7%. Maintenance regime Service life years (probability) $0 throughout life 7(0.2) 8(0.6) 9(0.2) $25000 (in year 4) 8 (0.15) 10 (0.5) 12 (0.35) $35,000 (years 3 and 6) 10 (0.25) 12 (0.5) 14 (0.25) $75,000 (year 6) 12 (0.3) 13 (0.33) 15 (0.37)

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter9: Capital Budgeting And Cash Flow Analysis
Section9.A: Depreciation
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2. The following maintenance altenatives are considered for a new assembly line that has an acquisition
cost of $250,000. Each has distinct service life expectancies and corresponding probabilities. Determine
the maintenance regime most likely to yield an annualized overall cost less than $32k, given an annual
rate of 7%.
Maintenance regime
$0 throughout life
$25000 (in year 4)
$35,000 (years 3 and 6)
$75,000 (year 6)
7 (0.2)
8 (0.15)
10 (0.25)
12 (0.3)
Service life years (probability)
8 (0.6)
10 (0.5)
12 (0.5)
13 (0.33) 15 (0.37)
9 (0.2)
12 (0.35)
14 (0.25)
Transcribed Image Text:2. The following maintenance altenatives are considered for a new assembly line that has an acquisition cost of $250,000. Each has distinct service life expectancies and corresponding probabilities. Determine the maintenance regime most likely to yield an annualized overall cost less than $32k, given an annual rate of 7%. Maintenance regime $0 throughout life $25000 (in year 4) $35,000 (years 3 and 6) $75,000 (year 6) 7 (0.2) 8 (0.15) 10 (0.25) 12 (0.3) Service life years (probability) 8 (0.6) 10 (0.5) 12 (0.5) 13 (0.33) 15 (0.37) 9 (0.2) 12 (0.35) 14 (0.25)
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Section 179 Deduction and Modified Accelerated Cost Recovery System (MACRS) Depreciation
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