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The owner of a small antifreeze plant has a small canning unit which cost him $5000 when he purchased it 10 years ago. The unit has completely depreciated, but the owner estimates that it will still give him good service for 5 more years. At the end of 5 years the unit will have a salvage value of zero. The owner now has an opportunity to buy a more efficient canning unit for $6000 having an estimated service life of 10 years and zero salvage value. This new unit would reduce annual labor and maintenance costs by $1000 and increase annual expenses for taxes and insurance by $100. All other expenses except depreciation would be unchanged. If the old canning unit can be sold for $600, what replacement return on his capital investment will the owner receive if he decides to make the replacement?

The owner of a small antifreeze plant has a small canning unit which cost him $5000 when he purchased it 10 years ago. The unit has completely depreciated, but the owner estimates that it will still give him good service for 5 more years. At the end of 5 years the unit will have a salvage value of zero. The owner now has an opportunity to buy a more efficient canning unit for $6000 having an estimated service life of 10 years and zero salvage value. This new unit would reduce annual labor and maintenance costs by $1000 and increase annual expenses for taxes and insurance by $100. All other expenses except depreciation would be unchanged. If the old canning unit can be sold for $600, what replacement return on his capital investment will the owner receive if he decides to make the replacement?

Introduction to Chemical Engineering Thermodynamics
Introduction to Chemical Engineering Thermodynamics
8th Edition
ISBN:9781259696527
Author:J.M. Smith Termodinamica en ingenieria quimica, Hendrick C Van Ness, Michael Abbott, Mark Swihart
Publisher:J.M. Smith Termodinamica en ingenieria quimica, Hendrick C Van Ness, Michael Abbott, Mark Swihart
Chapter1: Introduction
Section: Chapter Questions
Problem 1.1P
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8-15 The owner of a small antifreeze plant has a small canning unit which cost him $5000 when he purchased it 10 years ago. The unit has completely depreciated, but the owner estimates that it will still give him good service for 5 more years. At the end of 5 years the unit will have a salvage value of zero. The owner now has an opportunity to buy a more efficient canning unit for $6000 having an estimated service life of 10 years and zero salvage value. This new unit would reduce annual labor and maintenance costs by $1000 and increase annual expenses for taxes and insurance by $100. All other expenses except depreciation would be unchanged. If the old canning unit can be sold for $600, what replacement return on his capital investment will the owner receive if he decides to make the replacement?
Transcribed Image Text:8-15 The owner of a small antifreeze plant has a small canning unit which cost him $5000 when he purchased it 10 years ago. The unit has completely depreciated, but the owner estimates that it will still give him good service for 5 more years. At the end of 5 years the unit will have a salvage value of zero. The owner now has an opportunity to buy a more efficient canning unit for $6000 having an estimated service life of 10 years and zero salvage value. This new unit would reduce annual labor and maintenance costs by $1000 and increase annual expenses for taxes and insurance by $100. All other expenses except depreciation would be unchanged. If the old canning unit can be sold for $600, what replacement return on his capital investment will the owner receive if he decides to make the replacement?
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