Foghorn Leghorn is considering the replacement of an old egg-sorting machine used with his Foggy's Farm Fresh
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He also believes he could sell it 3 years from now at the barnyard flea market for $500. The new egg-sorting machine, a deluxe model, has a purchase price of $10,000 and will last 6 years, at which time it will have a salvage value of $1000. The new machine qualifies as a MACRS 7-year property and will have operating expenses of $100 the first year, increasing by $50 per year thereafter. Foghorn uses an after-tax MARR of 18% and a tax rate of 35% on original income.
What was the depreciation life used with the defender asset (the old egg sorter)?
Calculate the after-tax cash flows for both the defender and challenger assets.
Use the annual cash flow method to offer a recommendation to Foggy. What assumptions did you make in this analysis?
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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Related Book For
Engineering Economic Analysis
ISBN: 9780195168075
9th Edition
Authors: Donald Newnan, Ted Eschanbach, Jerome Lavelle
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