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
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Subject:eco
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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