A defender was installed 10 years ago at a capital investment cost of $67,000. It presently has a market value of $13,500. If kept, the defender has an economic life of three years, operating expenses of $15,000 per year, and a market value of $9,500 at the end of year (EOY) three. The defender is being depreciated by the straight line method using a 15-year write-off period with an estimated salvage value for depreciation purposes of $10,500 As an alternative, the defender can be replaced with a challenger which will cost $60,000 to install, have operating expenses of $9,000 per year, and have a final market value of $12,000 at the end of its 20-year economic life. If the replacement is made, the challenger will be depreciated with the straight line method over a 20-year life with an estimated salvage value of $12,000 at EOY 20. Such equipment (defender or challenger) will be needed indefinitely. If the after-tax MARR is 10% per year and the effective income tax rate is 25%, should the defender or the challenger be recommended? A Click the icon to view the interest and annuity table for discrete compounding when MARR = 10% per year. The AW value for the defender is S (Round to the nearest dollar.) The AW value for the challenger is S (Round to the nearest dollar.) The defender should be
A defender was installed 10 years ago at a capital investment cost of $67,000. It presently has a market value of $13,500. If kept, the defender has an economic life of three years, operating expenses of $15,000 per year, and a market value of $9,500 at the end of year (EOY) three. The defender is being depreciated by the straight line method using a 15-year write-off period with an estimated salvage value for depreciation purposes of $10,500 As an alternative, the defender can be replaced with a challenger which will cost $60,000 to install, have operating expenses of $9,000 per year, and have a final market value of $12,000 at the end of its 20-year economic life. If the replacement is made, the challenger will be depreciated with the straight line method over a 20-year life with an estimated salvage value of $12,000 at EOY 20. Such equipment (defender or challenger) will be needed indefinitely. If the after-tax MARR is 10% per year and the effective income tax rate is 25%, should the defender or the challenger be recommended? A Click the icon to view the interest and annuity table for discrete compounding when MARR = 10% per year. The AW value for the defender is S (Round to the nearest dollar.) The AW value for the challenger is S (Round to the nearest dollar.) The defender should be
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:A defender was installed 10 years ago at a capital investment cost of $67,000. It presently has a market value of $13,500. If kept, the defender has an economic life of three years, operating expenses of $15,000 per year, and a market value of $9,500 at the
end of year (EOY) three. The defender is being depreciated by the straight line method using a 15-year write-off period with an estimated salvage value for depreciation purposes of $10,500.
As an alternative, the defender can be replaced with a challenger which will cost $60,000 to install, have operating expenses of $9,000 per year, and have a final market value of $12,000 at the end of its 20-year economic life. If the replacement is made, the
challenger will be depreciated with the straight line method over a 20-year life with an estimated salvage value of $12,000 at EOY 20. Such equipment (defender or challenger) will be needed indefinitely. If the after-tax MARR is 10% per year and the effective
income tax rate is 25%, should the defender or the challenger be recommended?
Click the icon to view the interest and annuity table for discrete compounding when MARR = 10% per year.
.....
The AW value for the defender is $ (Round to the nearest dollar.)
The AW value for the challenger is $
(Round to the nearest dollar.)
The defender should be
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