Contemporary Engineering Economics 6th Edition by Chan Park

تمرين 11

Redo Problem with the following additional information.
• Option 1: The old sprayer has been fully depreciated. The new sprayer is classified as having a seven-year MACRS recovery period.
• Option 2: The larger capacity sprayer is classified as a seven-year MACRS property.
The company's marginal tax rate is 40%, and the firm uses a 12% after-tax MARR.
Problem
The Georgia Ceramic Company has an automatic glaze sprayer that has been used for the past 10 years. The sprayer can be used for another 10 years and will have a zero salvage value at that time. The annual operating and maintenance costs for the sprayer amount to $15,000 per year. Due to an increase in business, a new sprayer must be purchased. Georgia Ceramic is faced with two options.
• Option 1: If the old sprayer is retained, a new smaller capacity sprayer will be purchased at a cost of $48,000, and it will have a $5,000 salvage value in 10 years. This new sprayer will have annual operating and maintenance costs of $12,000. The old sprayer has a current market value of $6,000.
• Option 2: If the old sprayer is sold, a new sprayer of larger capacity will be purchased for $84,000. This sprayer will have a $9,000 salvage value in 10 years and will have annual operating and maintenance costs of $24,000.
Which option should be selected at MARR = 15%