Given the
I = $30,000
Sn = 22000 - 2,000n
Bn = 30,000 - 3,000n
O&Mn = 30,000 × (1 + 0.15)n-1
and
tm = 0.40
where
1 = Asset purchase price
Sn = Market value at the end of year
Bn = Book value at the end of year
O&Mn = O&M cost during year
tn = Marginal tax rate
(a) Determine the economic service life of the asset if i = 12%.
(b) Determine the economic service life of the asset if i = 20%.
(c) Assume that i = 0 and determine the economic service life of the asset mathematically (i.e., use the calculus technique for finding the mini-mum point, as described in Chapter 8).