Engineering Economy 7th Edition by Leland Blank ,Anthony Tarquin

Exercise 51

Three years ago, Silver House Steel purchased a new quenching system for $550,000. The salvage value after 10 years at that time was estimated to be $50,000. Currently the expected remaining life is 7 years with an AOC of $27,000 per year. The new president has recommended early replacement of the system with one that costs $400,000 and has a 12-year life, a $35,000 salvage value, and an estimated AOC of $50,000 per year. The MARR for the corporation is 12% per year. The president wishes to know the replacement value that will make the recommendation to replace now economically advantageous. Use a spreadsheet and Solver to find the minimum trade-in value
a) before taxes and b) after taxes, using an effective tax rate of 30%. For solution purposes, use classical SL depreciation for both systems. Comment on the difference in replacement value made by the consideration of taxes.