Pinnacle Custom Home Builders purchased a $40$ foot articulating boom lift three years ago for

$$50,000.$ The equipment has been depreciated under the $5-$year MACRS schedule $(20\%,32\%,$

$19\%,12\%,12\%$ & $5\%).$ The old equipment can be sold for $$33,000.$

Pinnacle is considering the purchase of a new $60$ foot articulating boom lift that would allow the company to complete nearly all of its construction projects without the need for costly rental lifts. The new lift could be purchased for $$105,000$ and would also fall under the $5-$year MACRS depreciation schedule.

Assume the old and new equipment would provide the following operating gains $($or losses$)$

over the next six years.

New Equipment Old Equipment

$1..............$ $$40,000$

$$25,0002..............38,00016,000$

$3..............35,0009,0004..............30,0008,0005..............25,0006,0006..............$

$22,500$

$5,000$

The firm has a $28$ percent tax rate and a $7$ percent cost of capital. Should the new equipment be purchased to replace the old equipment? Briefly justify your answer.

All interim calculations $($including TVM$)$ must be made using the built$-$in Excel functions and your submission should be in good form $($i$.$e$.,$ neat and easy to follow with descriptive labels, etc.$).$

Students are permitted to work with other students from the class but spreadsheet

submissions must be totally independent $($i$.$e$.,$ do not copy & paste from another student's work $-$ create your own spreadsheet from scratch$).$ Students may not seek assistance from the tutors, GSAs or other professors for this project. Post your completed spreadsheet in Bb using the Case Study #$4$ Excel Submission link $($above$).$