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A truck was purchased four years ago for $65,000 to move raw materials and finished goods between a production facility and four remote warehouses. This truck (the defender) can be sold at the present time for $40,000 and replaced by a new truck (the challenger) with a purchase price of $70,000. a. Given the MVs and operating and maintenance costs, what is the economic life of the challenger if MARR = 10% ? Note: This is a before-tax analysis that does not require any calculations involving the defender. b. Suppose that the defender was set up on a depreciation schedule with a five-year MACRS class life at the time of its purchase (four years ago). The corresponding depreciation rates are 20%, 32 % , 19.2%, 11.52 %, 11.52% and 5.76%. The tax rate is 40%. The defender can be sold now for $40,000, or a rebuilt engine and transmission can be purchased and installed at a cost of $12,000 (capital investment with three-year depreciable life, straight line, salvage value = 0). If the defender is kept in service, assume that it will have operating and maintenance costs as shown in Part (a) and a MV of SO at the end of four years. Determine the ATCFS for the defender. Click the icon to view the data for both alternatives. Click the icon to view the interest and annuity table for discrete compounding when MARR = 10% per year. a. The economic life of the challenger is year(s). (Round to the nearest whole number.) b. Fill in the following table with the ATCFS for the defender. (Round to the nearest dollar.) EOY 0 1 2 ATCF $ $ S i More Info EOY 1 2 3 Defender Market value $30,000 20,000 12,000 4.000 O&M Costs $8,500 10,500 14,000 16000 Challenger EOY Market value 1 2 3 $56,000 44,000 34,000 mm O&M Costs $5,500 6,800 7,400 0700 X

A truck was purchased four years ago for $65,000 to move raw materials and finished goods between a production facility and four remote warehouses. This truck (the defender) can be sold at the present time for $40,000 and replaced by a new truck (the challenger) with a purchase price of $70,000. a. Given the MVs and operating and maintenance costs, what is the economic life of the challenger if MARR = 10% ? Note: This is a before-tax analysis that does not require any calculations involving the defender. b. Suppose that the defender was set up on a depreciation schedule with a five-year MACRS class life at the time of its purchase (four years ago). The corresponding depreciation rates are 20%, 32 % , 19.2%, 11.52 %, 11.52% and 5.76%. The tax rate is 40%. The defender can be sold now for $40,000, or a rebuilt engine and transmission can be purchased and installed at a cost of $12,000 (capital investment with three-year depreciable life, straight line, salvage value = 0). If the defender is kept in service, assume that it will have operating and maintenance costs as shown in Part (a) and a MV of SO at the end of four years. Determine the ATCFS for the defender. Click the icon to view the data for both alternatives. Click the icon to view the interest and annuity table for discrete compounding when MARR = 10% per year. a. The economic life of the challenger is year(s). (Round to the nearest whole number.) b. Fill in the following table with the ATCFS for the defender. (Round to the nearest dollar.) EOY 0 1 2 ATCF $ $ S i More Info EOY 1 2 3 Defender Market value $30,000 20,000 12,000 4.000 O&M Costs $8,500 10,500 14,000 16000 Challenger EOY Market value 1 2 3 $56,000 44,000 34,000 mm O&M Costs $5,500 6,800 7,400 0700 X

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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A truck was purchased four years ago for $65,000 to move raw materials and finished goods between a production facility and four remote warehouses. This truck (the defender) can be sold at the present time for $40,000 and replaced by a new truck (the challenger) with a purchase price of $70,000. a. Given the MVs and operating and maintenance costs, what is the economic life of the challenger if MARR = 10% ? Note: This is a before-tax analysis that does not require any calculations involving the defender. b. Suppose that the defender was set up on a depreciation schedule with a five-year MACRS class life at the time of its purchase (four years ago). The corresponding depreciation rates are 20%, 32%, 19.2%, 11.52 %, 11.52% and 5.76%. The tax rate is 40%. The defender can be sold now for $40,000, or a rebuilt engine and transmission can be purchased and installed at a cost of $12,000 (capital investment with three-year depreciable life, straight line, salvage value = 0). If the defender is kept in service, assume that it will have operating and maintenance costs as shown in Part (a) and a MV of $0 at the end of four years. Determine the ATCFS for the defender. Click the icon to view the data for both alternatives. Click the icon to view the interest and annuity table for discrete compounding when MARR = 10% per year. a. The economic life of the challenger is year(s). (Round to the nearest whole number.) b. Fill in the following table with the ATCFS for the defender. (Round to the nearest dollar.) EOY 0 1 2 3 4 ATCF $ S S S S A More Info EOY 1 2 3 4 Defender Market O&M Costs value $30,000 20,000 12,000 4,000 $8,500 10,500 14,000 16,000 Print Challenger EOY Market value 1 2 3 4 Done $56.000 44,000 34,000 22,000 O&M Costs $5,500 6,800 7,400 9,700
Transcribed Image Text:A truck was purchased four years ago for $65,000 to move raw materials and finished goods between a production facility and four remote warehouses. This truck (the defender) can be sold at the present time for $40,000 and replaced by a new truck (the challenger) with a purchase price of $70,000. a. Given the MVs and operating and maintenance costs, what is the economic life of the challenger if MARR = 10% ? Note: This is a before-tax analysis that does not require any calculations involving the defender. b. Suppose that the defender was set up on a depreciation schedule with a five-year MACRS class life at the time of its purchase (four years ago). The corresponding depreciation rates are 20%, 32%, 19.2%, 11.52 %, 11.52% and 5.76%. The tax rate is 40%. The defender can be sold now for $40,000, or a rebuilt engine and transmission can be purchased and installed at a cost of $12,000 (capital investment with three-year depreciable life, straight line, salvage value = 0). If the defender is kept in service, assume that it will have operating and maintenance costs as shown in Part (a) and a MV of $0 at the end of four years. Determine the ATCFS for the defender. Click the icon to view the data for both alternatives. Click the icon to view the interest and annuity table for discrete compounding when MARR = 10% per year. a. The economic life of the challenger is year(s). (Round to the nearest whole number.) b. Fill in the following table with the ATCFS for the defender. (Round to the nearest dollar.) EOY 0 1 2 3 4 ATCF $ S S S S A More Info EOY 1 2 3 4 Defender Market O&M Costs value $30,000 20,000 12,000 4,000 $8,500 10,500 14,000 16,000 Print Challenger EOY Market value 1 2 3 4 Done $56.000 44,000 34,000 22,000 O&M Costs $5,500 6,800 7,400 9,700
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