To improve package tracking at a UPS transfer facility, conveyor equipment was upgraded with RFID sensors at

Question:

To improve package tracking at a UPS transfer facility, conveyor equipment was upgraded with RFID sensors at a cost of $345,000. The operating cost is expected to be $148,000 per year for the first 3 years and $210,000 for the next 3 years. The salvage value of the equipment is expected to be $140,000 for the first 3 years, but due to obsolescence, it won't have a significant value after that. At an interest rate of 10% per year, determine

(a) The economic service life of the equipment and associated annual worth

(b) The percentage increase in the AW of cost if the equipment is retained 2 years longer than the ESL

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...