Engineering Economy 7th Edition by Leland Blank ,Anthony Tarquin

Exercise 46

Nuclear safety devices installed several years ago have been depreciated from a first cost of $200,000 to zero using MACRS. The devices can be sold on the used equipment market for an estimated $15,000. Or they can be retained in service for 5 more years with a $9000 upgrade now and an AOC of $6000 per year. The upgrade investment will be depreciated over 3 years with no salvage value. The challenger is a replacement with newer technology at a first cost of $40,000, n = 5 years, and S = 0. The new units will have operating expenses of $7000 per year.
a) Use a 5-year study period, an effective tax rate of 40%, an after-tax MARR of 12% per year, and an assumption of classical straight line depreciation (no half-year convention) to perform an after-tax replacement study. b) If the challenger is known to be salable after 5 years for an amount between $2000 and $4000, will the challenger AW value become more or less costly Why