A packaging company is planning to replace its existing material handling system (MHS). The MHS that it now owns cost $135000 when purchased 7 years ago and was estimated to have 12 year useful life with a $3000 salvage value at the end of that time. Currently, the MHS has a net market value of $40000 and if it is not sold, it is expected to have operating costs of $24000 per year. A new MHS can be purchase for $85000. This new system is expected to have operating costs of $17000, an economic life of 7 years, and a salvage value of $10000 at the end of that time. For depreciation purposes, assume that the straight line method has been used, and the current MHS and new MHS are 10 year and 5 year recovery property, respectively. If the effective tax rate is 50%, which alternative should be selected in the case of a before tax MARR of 20% and an after tax MARR of 10%
A packaging company is planning to replace its existing material handling system (MHS). The MHS that it now owns cost $135000 when purchased 7 years ago and was estimated to have 12 year useful life with a $3000 salvage value at the end of that time. Currently, the MHS has a net market value of $40000 and if it is not sold, it is expected to have operating costs of $24000 per year.
A new MHS can be purchase for $85000. This new system is expected to have operating costs of $17000, an economic life of 7 years, and a salvage value of $10000 at the end of that time.
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If the effective tax rate is 50%, which alternative should be selected in the case of a before tax MARR of 20% and an after tax MARR of 10%
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