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Part a) Use a 10% MARR to determine the economic service life (ESL) of a defender asset (and the corresponding annual worth (AW) value) with the following characteristics: First cost = $70,000 Estimated annual operating cost (AOC) = $20,000 per year Maximum remaining useful life = 4 years Salvage value = $10,000 anytime it is replaced Part b) Determine the ESL and corresponding AW of the asset using more precise estimates as follows: AOC will be $20,000 in the first year and then increase by 15% per year Maximum remaining useful life = 8 years Salvage value will be $10,000 at EOY 1 and then decrease by $1,000 per year

Part a) Use a 10% MARR to determine the economic service life (ESL) of a defender asset (and the corresponding annual worth (AW) value) with the following characteristics: First cost = $70,000 Estimated annual operating cost (AOC) = $20,000 per year Maximum remaining useful life = 4 years Salvage value = $10,000 anytime it is replaced Part b) Determine the ESL and corresponding AW of the asset using more precise estimates as follows: AOC will be $20,000 in the first year and then increase by 15% per year Maximum remaining useful life = 8 years Salvage value will be $10,000 at EOY 1 and then decrease by $1,000 per year

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Part a) Use a 10% MARR to determine the economic service life (ESL) of a defender asset (and the corresponding annual worth (AW) value) with the following characteristics:

  • First cost = $70,000
  • Estimated annual operating cost (AOC) = $20,000 per year
  • Maximum remaining useful life = 4 years
  • Salvage value = $10,000 anytime it is replaced

Part b) Determine the ESL and corresponding AW of the asset using more precise estimates as follows:

  • AOC will be $20,000 in the first year and then increase by 15% per year
  • Maximum remaining useful life = 8 years
  • Salvage value will be $10,000 at EOY 1 and then decrease by $1,000 per year
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