A major boiler feed pump is considered for replacement. The planning horizon is 9 years at...

 

 

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A major boiler feed pump is considered for replacement. The planning horizon is 9 years at which point its salvage is estimated as $0. Its current market value is $750 and its current book value is $4,895. Annual operating costs are $5,340 per year. The pump was installed three years ago and its remaining MACRS depreciation deductions are $1,958, $1,958, and $979 for years 1, 2, and 3 respectively (depreciation deductions are zero for years 4, 5, 6, 7, 8, and 9). The challenger costs $16,000 and will have annual expenses of $3,320 and a salvage of $3,200 at the end of nine years. Use the cash flow replacement analysis approach to solve this problem. After tax MARR= 6%, the effective tax rate is 40%, and five year MACRS applies to the challenger. The info given above is also summarized in the table below. You have two options to choose from as follows. Starter tables for each of these options are provided below. Use those tables to complete your analysis. All appropriate cells must contain formulas. Option 1: Keep the defender throughout project life, or Option 2: Purchase the challenger now and use it throughout project life. Which option below should you choose? Please select only one by changing the text color of that option to red below. MARR=ATRR= 6% Effective tax rate 40% Defender MV if replaced by the challenger now: Current BV: Remaining life: Annual costs: 750 4895 9. 5340 Salvage at the end of its remaining lif Challenger Investment / Price: Annual costs: Salvage at the end of 9 yrs: 16000 3320 3200 Depreciation: 5-yr MACRS Option 1: k BTCF d NIBT=BTCF-d T=-t'NIBT ATCF=BTCF+T Option 2 k BTCF MACRS rate NIBT-BTCF-d T=t'NIBT ATCF=BTCF+T ATCF A major boiler feed pump is considered for replacement. The planning horizon is 9 years at which point its salvage is estimated as $0. Its current market value is $750 and its current book value is $4,895. Annual operating costs are $5,340 per year. The pump was installed three years ago and its remaining MACRS depreciation deductions are $1,958, $1,958, and $979 for years 1, 2, and 3 respectively (depreciation deductions are zero for years 4, 5, 6, 7, 8, and 9). The challenger costs $16,000 and will have annual expenses of $3,320 and a salvage of $3,200 at the end of nine years. Use the cash flow replacement analysis approach to solve this problem. After tax MARR= 6%, the effective tax rate is 40%, and five year MACRS applies to the challenger. The info given above is also summarized in the table below. You have two options to choose from as follows. Starter tables for each of these options are provided below. Use those tables to complete your analysis. All appropriate cells must contain formulas. Option 1: Keep the defender throughout project life, or Option 2: Purchase the challenger now and use it throughout project life. Which option below should you choose? Please select only one by changing the text color of that option to red below. MARR=ATRR= 6% Effective tax rate 40% Defender MV if replaced by the challenger now: Current BV: Remaining life: Annual costs: 750 4895 9. 5340 Salvage at the end of its remaining lif Challenger Investment / Price: Annual costs: Salvage at the end of 9 yrs: 16000 3320 3200 Depreciation: 5-yr MACRS Option 1: k BTCF d NIBT=BTCF-d T=-t'NIBT ATCF=BTCF+T Option 2 k BTCF MACRS rate NIBT-BTCF-d T=t'NIBT ATCF=BTCF+T ATCF

Answer rating: 100% (QA)

We will find NPV of the project assuming replacement If it is relpaced option 2 is preferred If it i... View the full answer