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
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
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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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