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The annual worth of the defender is determined to be $ The annual worth of the challenger is determined to be $ [ Since the annual worth of the defender is smaller, it is retained.

The annual worth of the defender is determined to be $ The annual worth of the challenger is determined to be $ [ Since the annual worth of the defender is smaller, it is retained.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Required information Nuclear safety devices installed several years ago have been depreciated from a first cost of $200,000 to zero using the Modified Accelerated Cost Recovery System (MACRS). The devices can be sold on the used equipment market for an estimated $15,000, or they can be retained in service for 5 more years with a $9000 upgrade now and an operating expenses (OE) of $6000 per year. The upgrade investment will be depreciated over 3 years with no salvage value. The challenger is a replacement with newer technology at a first cost of $40,000, n = 5 years, and S= 0. The new units will have operating expenses of $7000 per year. Use a 5-year study period, an effective tax rate of 41%, an after-tax minimum acceptable rate of return (MARR) of 18% per year, and an assumption of classical straight line depreciation (no half-year convention) to perform an after-tax AW-based replacement study. The annual worth of the defender is determined to be $| The annual worth of the challenger is determined to be $ Since the annual worth of the defender is smaller, it is retained.
Transcribed Image Text:Required information Nuclear safety devices installed several years ago have been depreciated from a first cost of $200,000 to zero using the Modified Accelerated Cost Recovery System (MACRS). The devices can be sold on the used equipment market for an estimated $15,000, or they can be retained in service for 5 more years with a $9000 upgrade now and an operating expenses (OE) of $6000 per year. The upgrade investment will be depreciated over 3 years with no salvage value. The challenger is a replacement with newer technology at a first cost of $40,000, n = 5 years, and S= 0. The new units will have operating expenses of $7000 per year. Use a 5-year study period, an effective tax rate of 41%, an after-tax minimum acceptable rate of return (MARR) of 18% per year, and an assumption of classical straight line depreciation (no half-year convention) to perform an after-tax AW-based replacement study. The annual worth of the defender is determined to be $| The annual worth of the challenger is determined to be $ Since the annual worth of the defender is smaller, it is retained.
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