Mary O'Leary's company ships fine wool garments from County Cork, Ireland. Five years ago she purchased some
Question:
Mary O'Leary's company ships fine wool garments from County Cork, Ireland. Five years ago she purchased some new automated packing equipment having a first cost of $125,000 and a MACRS class life of 7 years. The annual costs for operating, maintenance, and insurance, as well as market value data for each year of the equipment's l0-year useful life are as follows:
Annual Costs in Yearn for Market
Year, Value in
N Operating Maintenance Insurance Yearn
1 $16,000 $ 5,000 $17,000 $80,000
2 20,000 10,000 16,000 78,000
3 24,000 15,000 15,000 76,000
4 28,000 20,000 14,000 74,000
5 32,000 25,000 12,000 72,000
6 36,000 30,000 11,000 70,000
7 40,000 35,000 10,000 68,000
8 44,000 40,000 10,000 66,000
9 48,000 45,000 10,000 64,000
10 52,000 50,000 10,000 62,000
Now Mary is looking at the remaining 5 years of her investment in this equipment, which she had initially evaluated on the basis of an after-tax MARR of 25% and a tax rate of35% on ordinary equipment. Assuming that the replacement repeatability assumptions are valid, answer the following questions.
(a) What is the before-tax marginal cost for the remaining 5 years?
(b) When, if at all, should Mary replace this packing equipment if a new challenger, with a minimum EUAC of $110,000, has been identified: Use the data from the table and the decision map from Figure 13-1?
MARRMinimum 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...
Step by Step Answer:
Year Time Line Salv Oper Insur Maint Lost Interest Lost MV Total Marg Cost 1 5 80000 16000 17000 500...View the full answer
