Fifteen years ago the Acme Manufacturing Company bought a propane-powered forklift truck for $4800. The 48 company depreciated the forklift using straight-line depreciation, a 12-year life, and zero salvage value. A Estimated end-of-year maintenance costs for the next 10 years are as follows: Year Maintenance Cost 1 $ 400 2 600 3 800 4 1000 5–10 1400/year The old forklift has no present or future net salvage value (scrap value equals disposal costs). A modern unit can be purchased for $6500. It has an economic life equal to its 10-year depreciable life. Straight-line depreciation will be employed, with zero salvage value at the end of the 10-year depreciable life. Maintenance on the new forklift is estimated to be a constant $50 per year for the next 10 years, after which maintenance is expected to increase sharply. Should Acme Manufacturing keep its old forklift truck for the present or replace it now with a new one? The firm expects an 8% after-tax rate of return on its investments. Assume a 28% combined state-and-federal tax rate.
Fifteen years ago the Acme Manufacturing Company bought a propane-powered forklift truck for $4800. The 48 company
A Estimated end-of-year maintenance costs for the next 10 years are as follows:
Year Maintenance Cost
1 $ 400
2 600
3 800
4 1000
5–10 1400/year
The old forklift has no present or future net salvage value (scrap value equals disposal costs). A modern unit can be purchased for $6500. It has an economic life equal to its 10-year depreciable life. Straight-line depreciation will be employed, with zero salvage value at the end of the 10-year depreciable life. Maintenance on the new forklift is estimated to be a constant $50 per year for the next 10 years, after which maintenance is expected to increase sharply. Should Acme Manufacturing keep its old forklift truck for the present or replace it now with a new one? The firm expects an 8% after-tax
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