9-24. In 2017, a certain manufacturing company has some existing semi-automated production equipment which they are considering replacing. This equipment has a present market value of $57,000 and a book value of $30,000. It has five more years of straight-line deprecia- tion available (if kept) of $6,000 per year, at which time its book value would be zero. The estimated market value of the equipment five years from now (in year 0 dollars) is $18,500. The market value escalation rate on this type of equipment has been averaging 3.2% per year. The total annual operating and maintenance (O & M) expense and other related expenses are averaging $27,000 per year. New automated replacement equipment would be leased. Estimated O & M and related company expenses for the new equipment are $12,200 per year. The annual leasing costs would be $24,300. The MARR (after-tax including inflation component) is 9%, the effective tax rate is 40%, and the study period is five years. Based on an after-tax, AS analysis, should the new equipment be leased? Use the IRR method. (Chapter 8. 9.9.9.10
9-24. In 2017, a certain manufacturing company has some existing semi-automated production equipment which they are considering replacing. This equipment has a present market value of $57,000 and a book value of $30,000. It has five more years of straight-line deprecia- tion available (if kept) of $6,000 per year, at which time its book value would be zero. The estimated market value of the equipment five years from now (in year 0 dollars) is $18,500. The market value escalation rate on this type of equipment has been averaging 3.2% per year. The total annual operating and maintenance (O & M) expense and other related expenses are averaging $27,000 per year. New automated replacement equipment would be leased. Estimated O & M and related company expenses for the new equipment are $12,200 per year. The annual leasing costs would be $24,300. The MARR (after-tax including inflation component) is 9%, the effective tax rate is 40%, and the study period is five years. Based on an after-tax, AS analysis, should the new equipment be leased? Use the IRR method. (Chapter 8. 9.9.9.10
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Transcribed Image Text:9-24. In 2017, a certain manufacturing company has
some existing semi-automated production equipment
which they are considering replacing. This equipment has
a present market value of $57,000 and a book value of
$30,000. It has five more years of straight-line deprecia-
tion available (if kept) of $6,000 per year, at which time
its book value would be zero. The estimated market value
of the equipment five years from now (in year 0 dollars)
is $18,500. The market value escalation rate on this type
of equipment has been averaging 3.2% per year. The total
annual operating and maintenance (O & M) expense and
other related expenses are averaging $27,000 per year.
New automated replacement equipment would be
leased. Estimated O & M and related company expenses
for the new equipment are $12,200 per year. The annual
leasing costs would be $24,300. The MARR (after-tax
including inflation component) is 9%, the effective tax
rate is 40%, and the study period is five years. Based on
an after-tax, AS analysis, should the new equipment be
leased? Use the IRR method. (Chapter 8, 9.9, 9.10)
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