The Los Angeles, California, city engineer is analyzing a for-profit public works project at the port authority using an after-tax replacement analysis of the system installed 5 years ago (defender) and a challenger as detailed below. All values are in $1000 units. The effective state tax rate of 6% is applicable, but no federal taxes are imposed. The municipal after-tax return of 6% per year is required. Assume salvages in the future occur at the estimated amounts and use classical SL depreciation.

(a) Perform the AW analysis by hand.

(b) Perform the evaluation using a spreadsheet.

(c) Would the decision be different if a beforetax replacement analysis were performed at i = 12% per year? Also, write the spreadsheet functions to display the AW values.

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Challenger Defender First cost, $ OE, $ per year Salvage estimate, $ Market value, $ Life, years -28,000 -15,000 -1200 -1500 2000 3000 15,000 10