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A five-year old machine costs $15,000 when new and is being depreciated on a straightline basis to a zero salvage value using a seven year schedule. It will last a total of ten years. Theoperating expenses for this machine are $2,500 paid at the end of each year. At the end of itslife, it will be replaced by a new machine which costs $22,000, will last 10 years and haveoperating costs of $1,500/yr. The interest rate is 10%/yr and the tax rate 50%/yr.a) Should we replace it now instead of waiting for five years?b) What is the current book value of the old machine?

A five-year old machine costs $15,000 when new and is being depreciated on a straightline basis to a zero salvage value using a seven year schedule. It will last a total of ten years. Theoperating expenses for this machine are $2,500 paid at the end of each year. At the end of itslife, it will be replaced by a new machine which costs $22,000, will last 10 years and haveoperating costs of $1,500/yr. The interest rate is 10%/yr and the tax rate 50%/yr.a) Should we replace it now instead of waiting for five years?b) What is the current book value of the old machine?

Introduction to Chemical Engineering Thermodynamics
Introduction to Chemical Engineering Thermodynamics
8th Edition
ISBN:9781259696527
Author:J.M. Smith Termodinamica en ingenieria quimica, Hendrick C Van Ness, Michael Abbott, Mark Swihart
Publisher:J.M. Smith Termodinamica en ingenieria quimica, Hendrick C Van Ness, Michael Abbott, Mark Swihart
Chapter1: Introduction
Section: Chapter Questions
Problem 1.1P
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A five-year old machine costs $15,000 when new and is being depreciated on a straight
line basis to a zero salvage value using a seven year schedule. It will last a total of ten years. The
operating expenses for this machine are $2,500 paid at the end of each year. At the end of its
life, it will be replaced by a new machine which costs $22,000, will last 10 years and have
operating costs of $1,500/yr. The interest rate is 10%/yr and the tax rate 50%/yr.
a) Should we replace it now instead of waiting for five years?
b) What is the current book value of the old machine?

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