The Railway Corporation has an overhead crane that has an estimated remaining life of 9 years. The crane can be sold now for $11000. If the crane is kept in service, it must be overhauled immediately at a cost of $5000. Operating and maintenance costs will be $4000 per year after the crane is overhauled. The overhauled crane will have zero MV at the end of the 9-year study period. A new crane will cost $21000, will last for 9 years, and will have a $8000 MV at that fime. Operating and maintenance costs are $3000 per year for the new crane. The company uses a before-tax interest rate of 13% per year in evaluating investment alternatives. DO NOT USE COMMAS, DECIMAL POINTS, OR DOLLAR SIGNS IN YOUR ANSWERS. What is the AW for the Defender? What is the AW for the Challenger? Should the company replace the old crane? The Railway Corporation has an overhead crane that has an estimated remaining life of 9 years. The crane can be sold now for $11000. If the crane is kept inservice, it must be overhauled immediately at a cost of $5000. Operating and maintenance costs will be $4000 per year after the crane is overhauled. The overhauledcrane will have zero MV at the end of the 9-year study period. A new crane will cost $21000, will last for 9 years, and will have a $8000 MV at that time. Operatingand maintenance costs are $3000 per year for the new crane. The company uses a before-tax interest rate of 13% per year in evaluating investment alteratives.DO NOT USE COMMAS, DECIMAL POINTS, OR DOLLAR SIGNS IN YOUR ANSWERS.What is the AW for the Defender?What is the AW for the Challenger?Should the company replace the old crane?

Part 2:Approach to solving the question:To determine whether the Railway Corporation should replace…

Answered: The Railway Corporation has an overhead…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 14P

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The Railway Corporation has an overhead crane that has an estimated remaining life of 9 years. The crane can be sold now for $11000. If the crane is kept in service, it must be overhauled immediately at a cost of $5000. Operating and maintenance costs will be $4000 per year after the crane is overhauled. The overhauled crane will have zero MV at the end of the 9-year study period. A new crane will cost $21000, will last for 9 years, and will have a $8000 MV at that fime. Operating and maintenance costs are $3000 per year for the new crane. The company uses a before-tax interest rate of 13% per year in evaluating investment alternatives. DO NOT USE COMMAS, DECIMAL POINTS, OR DOLLAR SIGNS IN YOUR ANSWERS. What is the AW for the Defender? What is the AW for the Challenger? Should the company replace the old crane?