Extended Learning Exercise A truck was purchased four years ago for $65,000 to move raw materials and

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Extended Learning Exercise A truck was purchased four years ago for $65,000 to move raw materials and
Extended Learning Exercise A truck was purchased four years ago

finished goods between a production facility and four remote warehouses. This truck (the defender) can be sold at the present time for $40,000 and replaced by a new truck (the challenger) with a purchase price of 570,000.
a. Given the MVs and operating and maintenance costs that follow, what is the economic life of the challenger if MARR = 10%? Note: This is a before-tax analysis that does not require any calculations involving the defender.
b. Suppose that the defender was set up on a depreciation schedule with a five-year MACRS class life at the time of its purchase (four years ago). The defender can be sold now for $40,000, or a rebuilt engine and transmission can be purchased and installed at a cost of $12,000 (capital investment with three-year depreciable life, straight line, salvage value = 0). If the defender is kept in service, assume that it will have operating and maintenance costs as shown in Part (a) and a MV of $0 at the end of four years. Determine the ATCFs for the defender.

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...
MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...
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Engineering Economy

ISBN: 978-0132554909

15th edition

Authors: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling

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