A piece of equipment has a first cost of $150,000, a maximum useful life of 7 years,

Question:

A piece of equipment has a first cost of $150,000, a maximum useful life of 7 years, and a market (salvage) value described by the relation S = 120,000 – 20,000 k , where k is the number of years since it was purchased. The salvage value cannot go below zero. The AOC series is estimated using AOC = 60,000 + 10,000 k. The interest rate is 15% per year. Determine the economic service life

(a) By hand solution, using regular AW computations,

(b) By spreadsheet, using annual marginal cost estimates.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...