A pharmaceutical company has some existing semiautomated production equipment that they are considering replacing. This equipment has a present MV of $59,000 and a BV of $33,000. It has five more years of straight-line depreciation available (if kept) of $6,600 per year, at which time its BV would be $0. The estimated MV of the equipment five years from now (in year-zero dollars) is $18,000. The MV rate of increase on this type of equipment has been averaging 4.4% per year. The total operating and maintenance and other related expenses are averaging $27,500 (A$) per year. New automated replacement equipment would be leased. Estimated operating and maintenance and related company expenses for the new equipment are $11,900 per year. The annual leasing cost would be $24,300. The after-tax MARR (with an inflation component) is 6% per year (m); t = 25%; and the analysis period is five years. Based on an after-tax, A$ analysis, should the replacement be made? Base your answer on the actual IRR of the incremental cash flow. CIB The actual IRR of the incremental cash flow is %. (Round to one decimal place.)

A pharmaceutical company has some existing semiautomated production equipment that they are considering replacing. This equipment has a present MV of $59,000 and a BV of $33,000. It has five more years of straight-line depreciation available (if kept) of $6,600 per year, at which time its BV would be $0. The estimated MV of the equipment five years from now (in year-zero dollars) is $18,000. The MV rate of increase on this type of equipment has been averaging 4.4% per year. The total operating and maintenance and other related expenses are averaging $27,500 (A$) per year. New automated replacement equipment would be leased. Estimated operating and maintenance and related company expenses for the new equipment are $11,900 per year. The annual leasing cost would be $24,300. The after-tax MARR (with an inflation component) is 6% per year (m); t = 25%; and the analysis period is five years. Based on an after-tax, A$ analysis, should the replacement be made? Base your answer on the actual IRR of the incremental cash flow. CIB The actual IRR of the incremental cash flow is %. (Round to one decimal place.)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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